Risk varies with every individual. A personal risk profile impacts primarily on the investment choices made, but is also driven by individual circumstances and needs.
An individual needs to balance their attitude to risk with their desire for positive returns. All investments carry some degree of risk. Once you understand your attitude to risk you can better achieve the most suitable investment mix for your needs.
The information set out herein is not advice; it is designed to enable you to formulate your own investment decisions. If you are unsure of the suitability of any investment, you should contact a Financial Adviser.
There are two aspects to Investment Risk, the risk that investments will fall in value and the risk that investments will not grow sufficiently to meet investment objectives. It must be accepted that the value of investments can go down as well as up, and yields may vary so any income is variable and cannot be guaranteed.
As well as investment risk, there are other risks that can impact returns, and potentially your attitude to risk. Examples are:
- Taxation rules can change and may affect performance
- Interest rates
- War, Terrorist Acts and Natural Disasters
- Changes in personal circumstances necessitating forced redemption of investments
- Currency Rates of Exchange
Your Attitude to Risk
There are two aspects to consider.
Are you able to take risks? Do you have sufficient funds to meet your day to day needs and meet any emergency requirements? Generally a wealthy investor who can invest over longer periods may be more able to accept a higher degree of risk.
Are you willing to take risks? Will you be content should investments fall in value, or will this make you uncomfortable and unwilling to continue investing?
Set out below are distinct risk profiles. Previous experience has indicated that all investments, no matter which profile they fit, can be subject to price and return volatility.
The investment is expected to be secure over the anticipated holding period. Loss of capital is very unlikely, e.g. the default of a major bank, but the returns are likely to be low and, over a period of time, there is the risk that the investment value can be eroded by inflation. This equates to SRRI value 1.
- National Savings
- Bank and Building Society Accounts
You are seeking a slightly better return than bank or building society savings accounts over the medium to long term. In return, you are prepared to accept that the value of your investments will fluctuate, but prize steadiness and capital preservation over higher potential growth and the greater risk this entails. As with all investments, even by taking a lower risk investment strategy, you may not get back all the money you invest.
This equates to SRRI values 2 and 3.
- Money Market Funds
- Absolute Return Funds
- Corporate Bond Funds
- Gilt Funds
- Cautious Managed Funds
You are willing to accept the possibility of losses and fluctuation in the value of your investments. In return, you are seeking potential for growth over and above inflation over the medium to long term. You value capital preservation more highly than greater opportunity for growth. As with all investments, even by taking a medium risk investment strategy, you may not get back all the money you invest.
This equates to SRRI value 4.
- Equity and Bond Income
- Balanced Managed
- Active Managed
- Equity Income and Growth
You are investing for the long-term (ideally greater than ten years), and are comfortable with accepting high potential for losses and large fluctuations in the value of your investments. In return you are seeking the opportunity for capital growth, which you prize above capital preservation. As is the case with all higher risk investments, there is a greater chance that you do not get back all the money you invest than with less risky strategies.
This equates to SRRI value 5.
- UK Equity income
- North America
- Global growth
- UK All Companies
You are investing for the long term (ideally greater than ten years), and are willing to accept large losses and significant fluctuations in the value of your portfolio. In return, you are seeking higher gains at the possible expense of capital preservation. By taking a high risk investment approach, there is a greater chance that you do not get back all the money you invest than with less risky strategies.
This equates to SRRI value 6 and 7.
- Japanese Smaller Companies
- Technology & Telecoms
- North American Smaller companies
- Asia Pacific
- UK Smaller Companies
- European Smaller Companies
- Global Emerging Markets