High risk? Sounds risky, doesn't it?

High risk? Sounds risky, doesn't it?

- Posted by Graham Elson on November 22nd, 2017

When starting on our investment journey, one of the first things we are asked to consider is risk.

As a population, risk is perceived, for the most part, with negative connotations, almost a scare factor to make you really consider the decision you are about to make, setting off the alarm system in your brain and many-a-time leading you to backtrack on your decision.

So, what is risk and what are the different categories of risk in investment?

Risk or investment risk is generally defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment. However, there are certain things to consider and it is important to not let your emotions get the better of you.

Risks should be considered mainly in the context of the overall timeframe for the investment and the location of stocks and shares that you are willing to invest in. Let us explain:

  • Low risk - You are very cautious of money and seeing large fluctuations in your investment would leave you feeling unsettled. Low risk investors are often those who are unable to commit to leaving capital invested for at least 5 years.
  • Lower-medium Risk - much like the low risk investor, you are also cautious but are keen for your capital to keep up the pace of inflation and are willing to keep your capital invested for at least five years. You understand that in the short term your investments may fall in value and are happy to accept this for greater returns in the longer-term.
  • Medium risk - You are sure that you want your capital to keep up with inflation and are also sure that you are willing to invest for at least 5 years. You also understand the potential benefits of some of your capital to be invested overseas and realise that there may be significant falls in the value of your investments but also realise that taking the medium risk gives you potential to achieve better longer-term returns.
  • Upper-medium risk - You are willing to invest a proportion of your wealth in assets of higher risk in order to potentially achieve higher returns. You understand the risks of overseas investing and are comfortable for this to happen within your portfolio. The timeframe on an investment of this risk band is of 5-10 years or longer and you fully comprehend that this may mean the value of your investments could go down as well as up.
  • High risk - You are very adventurous and are looking to achieve very high returns but understand that this comes at a much higher risk. This risk is generally for those with lots of investment experience under their belt and not for the faint hearted as you may experience sharp falls in the value of your investments.

Whichever you consider to be your risk tolerance, it is important to remember that the value of your investments may go down as well as up and you may not necessarily get back the amount you invested, whatever risk tolerance you have. Here at Elson Associates we do not provide advice as to the suitability of investment, so if you are unsure we recommend that you seek expert advice.

If you would like to learn more about how we can help you, contact us today on 0800 0961111 to speak to one of our team or email us on info@elsonassociates.com. Elson Associates - Investment Management Services UK.