What are the risks and rewards of investing?
Your guide to the risks and rewards associated with investments. Investment values can rise and fall.
Key points
- Steady growth vs greater potential - the differences between saving and investment
- Matching different types of investments to your risk tolerance
- ISAs vs general investment accounts - the tax position
If you're new to investing, it's hard to know what to expect. Here we outline some of the key things to consider before deciding whether to invest.
Can you make money from investing?
Yes, you can aim to make money from investing.
However, investments can fall as well as rise in value, and you could get back less money than you put in.
This makes investing less predictable than saving, and you do not know what the rate of return on your investments will be before you invest.
Savings accounts show you the interest rate beforehand, so it's easier to know how much your money will grow. However, it's worth noting that depending on the type of savings account, the interest rate could change over time.
Can you lose money by investing?
In short, yes. By nature, investments can fall or rise in value. So, just as you can make money through investing, you’re also at risk of making a loss. This is why investing is riskier than saving.
Are savings accounts worth it?
Savings accounts grow your money slowly but steadily. So, they’re a safer option than investing, but don’t have as much potential for capital growth. You can choose from fixed or variable interest savings. If you go for fixed, your rate is guaranteed for a set period of time, regardless of market conditions. Variable interest rates could go up or down in line with the terms of the account. As no one knows how quickly living costs will increase over time, there is also a risk that your savings may not keep up with inflation, and therefore your money may not stretch as far.
Can you minimise the risk of investing?
One way to lower your risk level is to diversify your investments. This means spreading your money across different asset classes, such as company shares, bonds, money market instruments and commercial property.
If you put too much money into one company or industry, then you might run a higher risk of losing some of your money.
Will I pay tax on my investment profits?
Yes, you may be liable for Income Tax and Dividend Tax on the gains from investments - and possibly Capital Gains Tax if you sell them - unless your investments are held in an ISA.
You won't pay any Income or Capital Gains Tax on any profits you make from the money held in an ISA. However, there is a limit to how much money you can contribute to your ISAs. For the 2025/2026 tax year, your ISA allowance is £20,000.
Tax rules are subject to change and are dependent on individual circumstances.
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Investment values can rise and fall.