Risk sounds like something to avoid with your finances. But in fact, risk is essential when you want to build your wealth.
At Continuum we are looking at risk in investment and how getting risk right could mean a brighter outlook, especially in the current climate.
What is risk?
Risk is part of any investment. Unlike saving, where your cash is protected and the level of interest it will earn is known, with investment there are no guarantees. The value of any investment can fall as well as rise.
In return for this risk, the return on investments can potentially be substantially larger than on savings.
The key principle is that the greater the risk, the greater the potential– ultimately because those offering high risk investments know they have to offer investors more to make the risk worthwhile. You can make low risk investments, but the return is likely to be slow and steady, rather than spectacular.
Generally speaking, the risk is not that that money you invest will vanish altogether, but with most investments, the risk is that the business or other asset that you invest in will underperform, and not provide the returns you want.
The risk that is right for you
But if all investments carry some risk, how can you know which are right for you? Before you start investing, it’s important to understand what level of risk you are comfortable with. Are you happy to take calculated risks in the hope of a higher return, or would you prefer to play things safer?
If you are the kind of investor who can’t sleep when the FTSE100 drops 100 points, you may be risk averse, and prefer low risk investment, such as government bonds. If you are looking for the chance of high returns, a high risk stock such as a tech start up might be for you.
So, some risk can mean potentially higher returns, but things don’t stop there. Your need for risk will change over time. If you are young with years to rebuild your wealth if things go wrong, high risk investments may be worthwhile. If retirement is approaching, and your priority is to secure funds you already have, it might be time to look at safe investments.
Understanding your attitude to risk
From outset understanding your attitude to risk is of great importance. Completing our attitude to risk questionnaire will help give you an idea of your attitude to risk, and allow us to agree a suitable investment strategy to fit your financial needs and circumstances.
At Continuum we can find the investments that are most suitable for every level of risk. It is easy to change the profile as your attitudes, circumstances and need for risk change and we can help continuously reshape this as time goes by.
Different people have different attitudes to risk and we need to understand yours to build your portfolio. We will always sit down with you to understand all the factors that affect you. It will let us suggest a suitable investment strategy for you.
So, should you take a risk now?
With the economy starting to take a turn for the better, it could be time to invest. Inevitably, this will mean some degree of risk. It could be the businesses that have been hardest hit by Covid may have the most potential for recovery.
You need to understand the risk and ensure that you are comfortable with it.
At Continuum we can help you understand the attitude to risk you have and whether or not it is the approach you need – and the expertise to find the investments to build an investment portfolio that is right for you.
The Financial Conduct Authority does not regulate deposit accounts.
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
Equity investments do not afford the same capital security as deposit accounts.