Only you can judge what level of risk you feel comfortable
with and you should think seriously about whether you can afford to lose money
or lock it away for a sustained period. All investment carries a degree of risk
so you should never invest more than you can afford to lose.
Building a portfolio to suit your level of risk
To work out your own risk tolerance you should think about
how much money you could face losing without it having a negative impact on
your lifestyle or emotional state. Before investing you need to work out how
you would cope if your investments fell by 10%, 30% or 50%, then you can set a
limit for yourself.
How long to invest
You may have a different attitude for different types of
investments. For example you might be happy to take some risk with money you
won't need access to for many years – but if you are also saving up for
something over just a few years, you'll need to be much more cautious.
Your risk tolerance is always linked to your investment
timeframe. If you are investing on a short-term basis (less than five years)
then you need to be prepared to accept more risk because if the value of your
investment falls you will only have a limited time for it to recover so you can
break even.
The longer you have to invest, then the more able you will
be to withstand short-term losses and see the value of your investment recover.
However, it can take a long time for that recovery to happen and stock markets
will always have bad years as well as good ones.
Always seek financial advice
A good independent financial adviser will help you establish
your attitude to risk, especially if you are not confident or experienced.
However it's important to find an adviser that specialises
in investment and to make sure that they go through this process of finding
your ‘attitude to risk’ thoroughly.
0 comments:
Post a Comment