Risk is a fundamental part of any investment and, arguably, no investment is meaningful without it. The amount of risk you take should be a personal decision and can be influenced by a number of things. To some extent, risk can be subjective as only some might find a 50/50 chance of return a risk, while most, if not all, will agree that even a 5% chance of return is a risk. This article will help you determine your personal risk level and see how this relates to specific investments.
A low-risk investment might be taken by someone who has more to lose or is less willing to take a risk. They offer stability and security but in theory, because the risk is less, the size of the return will be less, and is usually around 1-5% annually. This is, therefore, a way to provide a regular income or capital preservation. These include investments in cash or government bonds, or money market bonds, as investing in a savings account is less risky than stocks or shares.
This is also a good choice for people who need money quickly. For example, if you have £20,000 and need to put a deposit down on a house next year then you will be likely to choose low-risk. However, if the £20,000 is going towards a beach house in the distant future, you might instead choose a high-risk investment because there is more time to recover any losses. There is also less chance of being forced to sell out of position too early.
Medium risk investments are more long-term investments with moderate returns, usually of around 5-12%. A medium risk investor often diversifies their investments by investing in a range of things, while still trying to maximise returns. These might include shares, bonds, property or stocks that are good for long term investment.
A high-risk investment is generally taken by those with good knowledge of investments. These are typically investors who want to achieve the biggest returns possible and more importantly, can afford to take more risk. If successful, they can get returns of 10-30%. International stocks are the most commonly thought of as high-risk investments. A high-risk investor will put a high proportion of capital into stocks and shares, seeking out those with the potential for the greatest rewards.
There are no definite ways to measure risk and often it comes down to the individual investor’s judgement. Undertaking a high-risk investment is not a decision that should be taken lightly and should only be done when you can afford to take on the risk.
To ensure you are making the right investment choices speak to a profession such as, Partridge Muir & Warren, a wealth and investment management firm in Surrey, who can provide you with personal advice. They have years of experience and will help you make an informed decision, so you can achieve your financial goals.