There are different types of risk involved with investing, so it’s important to find out what they are and think about how much risk you’re willing to take.

There are various types of investment – some will be right for you and some won't. It all depends on your attitude to risk (how much risk you are prepared to take), whether you can afford to lose capital value if the investment does not perform well, and what you are trying to achieve with your investments.

Think about why you want to invest. Perhaps you are looking for an investment to provide money for a specific purpose in the future. Alternatively, you might want an investment to provide extra income.

This section will help you understand the key issues to consider when investing.

When deciding whether to invest, it's key to ask yourself how comfortable you would be facing a short-term loss in order to have the opportunity to make long-term gains. Risk is a very personal thing – what may be a small amount of risk to one person may be huge to another.

If you are going to invest, you need to be prepared to take some risk and to see at least some fall in the value of your investment. Some investments carry the risk of losing all of your money (and, in some cases, of more money than you originally invest).

Firms have to give you clear risk warnings about the products they sell or advise on and have to explain these risks to you fully. If they are advising you, they also have to make sure the product is suitable for you – see Getting help

Some shares carry a higher risk than others – see Investing in higher-risk shares.

Risk can never be eliminated but it is possible to manage it, by Diversification – spreading your risk. Different investments behave in different ways and are subject to different risks. Putting your money in a range of different investments can help reduce the loss, should one or more of them fall.

It is also important to remember that risk and reward generally go hand in hand. The more risk you are prepared to take, the higher the potential reward. If you are not prepared to lose any of your money under any circumstances then you have to accept a lower level of return, and an investment is probably not a product you should be considering. If you see an investment promising a high return at little or no risk, be very wary. The old saying 'if it looks too good to be true, it probably is' almost always applies to investments.

Generally the lower the risk, the lower the potential reward. So, for example, cash and gilts (fixed interest securities issued by the government) are the safest, but offer minimal returns, and shares are more risky, but offer higher potential returns.

The Investment Management Association has a list and a chart of sector definitions.

You should also be aware of currency risk. Currencies – for example sterling, euros, dollars and yen – move in relation to one another. If you are putting your money into investments in another country then their value will move up and down in line with currency changes as well as the normal share-price movements.

Although we usually talk about the risk of losing money, there are other risks to think about. One is inflation risk. Inflation means that you will need more money in the future to buy the same things as now. When investing, therefore, beating inflation is an important aim. Investing in cash may not beat inflation over the long term.