All investments carry some degree of risk. When you invest, you make choices about what to do with your financial assets.
If you understand the risks associated with investing and you know how much risk you are comfortable taking, you can make informed decisions and improve your chances of achieving your goals.
Concept of risk for return
- As a general rule, the more risk you take the greater the potential for a higher return, but also the greater potential loss. Any time you invest money into something, there is a risk, whether large or small, that you might not get your money back.
Investment goals and timescales
- How you feel about risk depends on your individual circumstances and even your personality. Your investment goals and timescales will also influence how much risk you’re willing to take. None of us like to take risks with money, but the reality is there’s no such thing as a ‘no-risk’ investment.
Losing value in real terms
- Money you place in secure deposits, such as savings accounts, risks losing value in real terms (buying power) over time. This is because the interest rate paid won’t always keep up with rising prices (inflation).
Inflation and interest rates over time
- Stock market investments might beat inflation and interest rates over time, but you run the risk that prices might be low at the time you need to sell. This could result in a poor return or, if prices are lower than when you bought, losing money.
Capital risk
- Investing in the stock market is normally through shares (equities), either directly or via a fund. The stock market will fluctuate in value every day, sometimes by large amounts. You could lose some or all of your money depending on the company or companies you have bought.
Inflation risk
- The purchasing power of your savings declines. Cash deposits with low returns may expose you to inflation risk.
Liquidity risk
- You are unable to access your money when you want to. Liquidity can be a real risk if you hold assets such as property directly and also in the ‘bond’ market.
Currency risk
- Currency risk is the potential risk of loss from fluctuating foreign exchange rates when investments are exposed to foreign currency or in foreign-currency-traded investments.
Interest rate risk
- Changes to interest rates affect your returns on savings and investments. Even with a fixed rate, the interest rates in the market may fall below or rise above the fixed rate, affecting your returns relative to rates available elsewhere. Interest rate risk is a particular risk for bondholders.
- Whether you are looking to grow your capital, generate an income or preserve your wealth, we will put your money to work for you in a portfolio designed to give you confidence in achieving the future you want.
