You can't plan financially without understanding investment risk. Many people, when they hear about 'risk', think automatically about the chance of being defrauded or not getting all their money back. This 'capital' risk is important, but it isn't the only type.
Other types of risk involve uncertainty and
unpredictability. When you make an investment, it can be difficult to say with
any certainty what you'll get back when you finally cash it in. Share prices
fluctuate, interest rates vary and inflation is a risk too. Just concentrating
on capital risk and ignoring these other risks can mean you take too cautious
an approach.
Understanding risk means identifying your own attitude
towards it and identifying the different types of risk. Then you can pick up
tips for minimising the chances of things going wrong.
Investment risk of different types of assets
There are a number of different asset classes that you can
invest in, each of which come with their own risks. The four main asset classes
are cash, bonds, property and stocks and shares (equities).
Cash
Cash is the least risky of the four but it tends to deliver
low returns, which means the value of your money can be eroded in times of high
inflation.
Bonds
One step up the risk ladder is government bonds, or gilts,
followed by investment grade corporate bonds, where you effectively lend money
to large companies in exchange for a fixed-rate of interest.
Property
Investing in commercial property, such as offices,
supermarkets and warehouses, can grow your money through rental income and
growth in the value of the property you own.
Equities
Stocks and shares, commonly known as equities, are seen as
the most risky asset class, as stock markets can be highly unpredictable.
Investing in UK equities is considered as lower risk than US equities, while
emerging markets (such as India, China or Brazil) equities are viewed as the
highest risk as the companies you are investing in are less well known.
Source
Source
0 comments:
Post a Comment