What is risk?
Risk means different things to different people. But, ultimately, in investments, it is the possibility that you could lose money or that your investment may not fulfil all your expectations. Your view of risk is likely to depend on your short and long-term investment goals and how much you can afford to lose.
In simple terms 'risk' means that if you want the potential to gain more, you need to accept the potential to lose more. Whichever choice you make as an investor, you need to feel comfortable with the potential outcome. The key is to know what you are buying, and why.
Taking the low risk road
With low risk products, such as a deposit account, the return you get is fixed for long periods. The amount of interest you earn may move up and down over time, but the changes will be small, far apart and advanced notification is usually given. Except for inflation, your capital invested will not change in value. It won't go down, but revenue you'll generate will be purely interest based.
The rise and fall of high risk investments
Higher risk investments are less predictable. Taking a chance on the stock market can potentially deliver substantial gains. Take Company shares. Investors in blue chip companies are less likely to fall casualty to big fluctuations, but it has happened. If you purchase shares in the Alternative Investment Market, the risks are higher, as you're funding activities for relative newcomers. But if you pick a winner, the financial rewards can be good.
You will need to keep your eye on the market and prepare for swings in value. Result announcements, inflation, currency and political changes can impact the performance of individual company shares and entire sectors. Knowing when to pull out or stick with your investment is part of the risk. You may not lose money selling your shares, but a sudden leap in value could mean missing out on future gains.
Risk v reward
The risks you are prepared to take are individual to you. The potential to gain more means accepting the potential to lose more. We can help you identify realistic investment goals that meet your evolving financial aspirations. With access to the entire investment market, we can then pinpoint the most suitable investment for your needs.
Portlethen Financial Services introduces to St. James’s Place Wealth Management plc which is authorised and regulated by the Financial Conduct Authority