If you want to plan for your financial future, it helps to understand risk. If you understand 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.
\nRisk is the possibility of losing some or all of your original investment. Often, higher-risk investments offer the chance of greater returns, but there\u2019s also more chance of losing money. Risk means different things to different people. 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\u2019re willing to take. What you come out with is your \u2018risk profile\u2019.<\/p>\n
Different types of investment<\/strong> As a general rule, the more risk you\u2019re prepared to take, the greater returns or losses you could stand to make. Risk varies between the different types of investments. For example, funds that hold bonds tend to be less risky than those that hold shares, but there are always exceptions.<\/p>\n Losing value in real terms <\/strong> On the other hand, index-linked investments that follow the rate of inflation don\u2019t always follow market interest rates. This means that if inflation falls, you could earn less in interest than you expected.<\/p>\n Inflation and interest rates over time<\/strong> You can\u2019t escape risk completely, but you can manage it by investing for the long term in a range of different things, which is called \u2018diversification\u2019. 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.<\/p>\n Capital risk<\/strong> Inflation risk<\/strong> Credit risk<\/strong> Liquidity risk<\/strong> Currency risk<\/strong> Interest rate risk<\/strong> Investment goals and timescales that influence your choices If you want to plan for your financial future, it helps to understand risk. If you understand 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.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-2470","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/posts\/2470","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/comments?post=2470"}],"version-history":[{"count":0,"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/posts\/2470\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/media?parent=2470"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/categories?post=2470"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rmw-ifa.co.uk\/financialnews\/wp-json\/wp\/v2\/tags?post=2470"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nNone of us likes to take risks with our savings, but the reality is there\u2019s no such thing as a \u2018no-risk\u2019 investment. You\u2019re always taking on some risk when you invest, but the amount varies between different types of investment.<\/p>\n
\nMoney 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\u2019t always keep up with rising prices (inflation).<\/p>\n
\nStock 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.<\/p>\n
\nYour investments can go down in value, and you may not get back what you invested. Investing in the stock market is normally through shares (equities), either directly or via a fund. The stock market will fluctuate in value every day, sometimes by large amounts. You could lose some or all of your money depending on the company or companies you have bought. Other assets such as property and bonds can also fall in value.<\/p>\n
\nThe purchasing power of your savings declines. Even if your investment increases in value, you may not be making money in \u2018real\u2019 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.<\/p>\n
\nCredit risk is the risk of not achieving a financial reward due to a borrower\u2019s failure to repay a loan or otherwise meet a contractual obligation. Credit risk is closely tied to the potential return of an investment, with the most notable being that the yields on bonds correlate strongly to their perceived credit risk.<\/p>\n
\nYou are unable to access your money when you want to. Liquidity can be a real risk if you hold assets such as property directly, and also in the \u2018bond\u2019 market, where the pool of people who want to buy and sell bonds can \u2018dry up\u2019.<\/p>\n
\nYou lose money due to fluctuating exchange rates.<\/p>\n
\nChanges to interest rates affect your returns on savings and investments. Even with a fixed rate, the interest rates in the market may fall below or rise above the fixed rate, affecting your returns relative to rates available elsewhere. Interest rate risk is a particular risk for bondholders.<\/p>\n","protected":false},"excerpt":{"rendered":"