Investors have different attitudes to risk. It is a good idea to be clear about your risk profile and, within that context, the degree of risk you are willing, or not willing, to take.
There is a trade-off between risk and potential return. Thus:
- High risk investments yield high returns; but they pose the possibility of adverse consequences.
- Some Funds investing in specialist market sectors (e.g. Technology, Emerging Markets, Commodities, Ecology/Environment) carry greater risks because of the potential volatility of these sectors.
- Low risk investments generally yield lower returns; but they afford greater peace of mind.
- A diversified and structured portfolio may affect to your advantage the level of risk to which your investments are subject.
- Risk is also related to the time frame of your investment. With stocks and shares take a longer term view – most analysts recommend a minimum time frame of five years.
- Obviously, if your investment doubles in the space of a year, you could consider running off with the profits!
Finally, you should not invest without consulting a Prospectus, Key Features Documents and other literature relevant to your investment.
Let’s end with a well-tried trinity of warnings:
- Past performance of a stock or a share is not a guide to future returns.
- Its value and the income derived from it, can go down as well as up.
- Exchange rate fluctuations may affect the value of investments quoted in different currencies – downwards or upwards.