Before making any decisions about which funds to invest in, you need to consider how you feel about taking investment risk.

If you join an additional voluntary contribution (AVC) arrangement, you’ll be asked which fund(s) you want to invest in.

How your contributions are invested could have a big impact on your pension benefits in the future. Usually, the more you pay into your pension – and the more your investments grow – the better off you’ll be in retirement.

How do you know what level of risk is right for you?

This short video explains what attitude to risk is all about:

Are you willing to take a greater risk knowing the rewards could be bigger, or would you prefer a safer bet and smaller reward?

Of course, it depends on your needs and circumstances. For instance, with lower-risk funds, you might end up with your funds not being as much as you need. And if you’re a long way from taking your benefits, you might be able to take more risk knowing you have time to take action if any big drops in the market affected you.

But if you’re close to taking your benefits, you might want to consider protecting the value of your savings by taking less risk.

Remember:

High-risk funds

Pros: investors in higher-risk funds should expect to see above average growth over the long term

Cons: they might see big falls in value in the short term.

Low-risk funds

Pros: lower-risk funds are more steady

Cons: They’re less likely to help your benefits grow over the longer term.

Once you understand your attitude to risk, you can think about your aims for your retirement and start choosing.

You should consider speaking to an independent financial adviser (IFA) before making decisions about your finances. Visit www.unbiased.co.uk to find IFAs in your area.