RISKS AND REWARDS
Did you know that the majority of investors plump for ‘managed’ funds because they offer average risk, without really knowing what ‘risk’ means?
Taking a risk is what makes life interesting and investing in the financial markets is no different – the higher the risk, the higher the potential reward.
To plan successfully for your future, you have to understand what ‘risk’ is in the context of investments. In our world, it means how your money will be affected by market volatility.
A high-risk fund might make 30% one year and lose 15% the next, but given time it is likely to generate a larger than average return. If you don’t need the money for at least 10 years, you have time to ride out the peaks and troughs making high-risk funds the ones for you.
Depending on your age, planning a pension is the ideal place to take advantage of high-risk funds, as you can’t touch the money until you are 55 anyway. If you are setting up the fund when you are 30, why choose an average risk portfolio when you have so long for it to come right?
The older you get, the less time you have to take such a risk, which is why a good independent adviser will draw up an investment portfolio that benefits from a mix of funds. By establishing the kind of lifestyle you expect in retirement, we can work out how much risk you will have to take to make it happen.
As a general rule of thumb, you need £100,000 invested for every £5,000 of income you require (a return of 5%). For example, if you hope to achieve an income of £25,000 a year in retirement, you will need to invest £500,000.
Ultimately, investments are governed by a culture of fear and greed. Only when the fear of losing what you have made overrides the desire to make much more should you consider lower risk funds.
Can you afford not to take a risk? As always seek professional advice.
If you would like advice on financial affairs please contact:
CAMPBELL HARRISON
Retirement and Investment Planning
19 Paradise Square, Sheffield S1 2DE
Tel: 0114 272 3994 Fax: 0114 272 3775
www.campbellharrison.co.uk
Authorised and regulated by the Financial Services Authority
*This article is not intended to address your particular requirement and should not be relied upon in making any decision.
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Tags: Investment Planning Yorkshire, Retirement Planning, Savings