WHAT IS RISK AND WHY IS IT IMPORTANT?
The amount of risk you’re taking with your money isn’t always obvious.
For instance, you may think that the money you have in your deposit account is secure and free. However, even at low levels, inflation is a major threat to the value of your savings.
If the interest you’re receiving isn’t keeping pace with inflation then you’re actually losing money in real terms. To increase the value of your money, you need to invest in assets such as shares and bonds, which could produce inflation beating, long-term growth.
Investing almost always involves some degree of risk. With most investments the value of your money can fall as well as rise, depending on market and economic conditions.
However, it’s important to look at the risk positively, because low risk can mean there’s only limited reward. Although your money may be more secure, lower risk investments typically lead to lower potential rewards, especially in the short-term. On the other hand, investments that involve more risk often deliver long-term return, although the risk of the value of your investment falling is also greater.
Investing effectively is all about understanding your goals for you money and the level of risk you’re comfortable with. Once we know what kind of investor you are we can help you match your objectives to an appropriate investment strategy – one that aims to maximise returns while maintaining the right level of risk for you.
When deciding what you want from your investment, you need to consider time as well as risk. It’s important to know how long you’d like to leave your investment to grow, if, for example, you decide on anything less than five years, we’d recommend a bank or building society account or possibly no exit penalty with-profits bonds that give expected growth rates. For longer terms, we can recommend funds that invest in a mix of stocks and shares, property, gilts and cash. The exact mix depends on your attitude to risk.