Ways to diversify and manage your risk continued Investing for the long term Investing regularly As you’ll remember from the graph on page 8, while Investing at regular intervals can also help reduce the value of equities may fluctuate month on month, risk because markets rise and fall all the time. When it can increase over a longer time period. Many types the market price is low, a greater number of shares or of investment take a tumble for all kinds of reasons bonds can be bought for the same money. At other (see previous section on common types of risk), but if times, when the market is high, the opposite is true. you invest for the long term, it’s possible to ‘ride out’ If you buy continuously through the ups and downs, these short-term fluctuations. But please note, there the average price of the investment can be lower than is no guarantee of future growth in any market or if you make one lump sum investment. Of course, when investment type. the market falls, the existing investment will be worth The longer you invest, the bigger the potential effect of less. But, over time, regular investments can help to compound performance on the original value of your smooth out the market’s peaks and troughs. investment. Many of you will be familiar with the term ‘compounding’ from owning cash savings accounts. Compounding refers to the process whereby interest on your money is added to the original principal amount which then, in turn, earns interest. Your investments can benefit from compounding in a similar way, if you reinvest any income you receive, although you should remember that the value of stockmarket investments will fluctuate, causing prices to fall as well as rise and you may not get back the original amount you invested. 13