Lifestyle Financial Planning
Scott Robinson of Sabre Financial says “If you want to plan for your financial future, it helps to understand risk. By understanding 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. Often, higher risk investments offer the chance of greater returns, but there’s also more chance of losing money. Risk means different things to different people and how you feel about it 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 our savings, but the reality is there’s no such thing as a ‘no-risk’ investment. You’re always taking on some risk when you invest, but the amount varies between different types of investment. As a general rule, the more risk you’re prepared to take, the greater returns or losses you could stand to make. Risk varies between the different types of investments.
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). The purchasing power of your savings declines. Even if your investment increases in value, you may not be making money in ‘real’ terms if the things that you want to buy with the money have increased in price faster than your investment. Cash deposits with low returns may expose you to inflation risk.
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. You can’t escape risk completely, but you can manage it by investing for the long term in a range of different things, which is called ‘diversification’. You can also look at paying money into your investments regularly, rather than all in one go. This can help smooth out the highs and lows and cut the risk of making big losses.
Liquidity risk, when you are unable to access your money when you want to, can be a real risk if you hold assets such as property directly and also in the ‘bond’ market, where the pool of people who want to buy and sell bonds can ‘dry up’.”
Next month Shaun will discuss spreading risk between different kinds of investments to potentially improve your investment returns.
If you or your clients would like further information please contact Scott Robinson, on 01548 856444 or email firstname.lastname@example.org .
Sabre Financial is a trading title of Sabre Financial Planning Ltd. Sabre Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
By Sabre Financial | Wednesday, September 11, 2019