When we invest, we do so to make money, not lose it. But the problem is that investing inevitably means risk. The risk is usually not that your investment will lose all its value, although that can happen. The risk is volatility. As a general rule the higher the potential returns the higher the volatility, which means that the investment which could make you a great deal of money in a short time carries a bigger risk of losing at least some of it.
The risk is that investments could fall in value, be worth less than you paid for them, and cost you capital rather than help you build it.
However, at Continuum, we know that although risk cannot be altogether prevented, it can be controlled and reduced. We look at the ways to help protect your investments and your capital.
Have a spread of investments
Putting all your eggs in one basket is a bad idea with your groceries. It is even worse for your investments. Using all your capital – or even a large proportion of your capital – to buy shares in a single business courts disaster. As we have seen in recent years, even the largest and most stable looking business may run into problems, potentially rendering your investment worthless.
Diversification – spreading your investment across shares in a number of businesses – can be the first and most vital step in spreading, and so reducing the risk.
Have a spread of asset types
Investing in several asset classes can take diversification even further. It is based on the idea that when one asset falls because of market conditions, others will be on the way up for the same reasons. The traditional asset classes are equities (or stock and shares) bond and cash or money market instruments. These days many professionals invest in commodities, property, futures and other financial derivatives, and even cryptocurrencies.
Look for dividends
Investment works because it lets you buy into productive businesses and share in their profits, and investing in dividend-paying stocks can also help protect your portfolio. Historically, companies that pay generous dividends tend to grow earnings faster than those that don’t. When stock prices are falling, the cushion dividends provide is important to risk-averse investors and usually results in lower volatility.
Look to the long term
It might be possible in theory to profit from those ups and downs in the market by buying stock when it is in a trough, and selling when it hits a peak. In practice, it is impossible to know just when those peaks and troughs are coming. Trying to time the market is virtually impossible and selling usually means that you ‘crystallise’ a loss and miss out on its recovery. Investing for a minimum of five years can offset the ups and downs, and let the underlying growth in the value of your investment work for you.
The price of investments will rise and fall with the markets. When markets are volatile, the ups and downs can be disturbing – the solution may simply be to hold your nerve and do nothing
Get some professional help
At Continuum we take a professional approach to investment, and protecting your capital is at the heart of what we do. We will work with you to create long term investment strategies which are designed to help you enjoy steady growth – and with all the key protection techniques such as diversification integrated into the way your portfolio is planned and run.
We can help you understand the risk of various holdings – and decide which you should have in your portfolio at any particular stage of your wealth creation journey.
Our experts can combine a thorough understanding of the basics with a watch on the market. It means that we can help you plan the style of investment portfolio you need, and help you keep it current, and performing as it should.
We can help make investment easier, with services like our online portfolio <link> which will help you see how all your holdings are performing, and our regular news and market updates.
But most important of all we can give you individual support from an advisor who will work to understand your plans and to find the best way to invest to reach them.
To find out more, simply call us.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
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