Risk Versus Reward
One of the most difficult decisions in life is – what should I be doing with my money? This can be a difficult question as often it reflects the personality of the person- some people will want to keep their money safe and want to ensure that they have enough money while others may want to take a risk in order to get the maximum return. In this article, we will look at how to balance risk and return when deciding on investments.
How much can you afford to lose?
This is an important question. What it comes down to is if an investment failed would you have money to cover your bills? It is crucial to remember that investments can go down as well as up so you should always have some kind of buffer in the event that your investment fails.
How patient are you?
People may say “You shouldn’t invest at this time, the market is volatile etc”. Here is the thing – markets change. Over the course of an investment it can ebb and flow. What is important is the timing – you should be aware of when you want to get out.
What is your goal?
This is another issue when it comes to considering an investment. Are you looking to retire early? Do you have a specific goal? Are you looking to start a family? These are the questions to consider. It may sound obvious but these are the questions you should ask yourself when it comes to putting the money in and when you take the money out.
Have you considered taxes?
A good example of this is ISAs – you can set aside a certain amount of money tax free. It is also worth giving money as gifts for relatives and spouses as this can have tax benefits as well. This is something an adviser should discuss with you.
Of course the risk comes in terms of the legality of tax avoidance schemes – your adviser should give you an idea of whether or not this is appropriate.
Spreading the risk
Ultimately the conclusion an adviser will often come to is that it is better to spread your investments – this minimises risk by not relying on one individual investment and maximises your chance of returns by having more chances to back a winner.
The best way to do this is to discuss this with an adviser who has your interests at heart. They should look at your current circumstances and decide what is most appropriate for you.
In the end it is your decision how much you want to risk with your money. At Larcomes Financial Services we believe in being “big enough to specialise, small enough to care”.
This means we have the resources to help you while at the same time being able to guide you through the options available. For more information, please contact us today and we’ll be happy to discuss our services in more detail and look at what is best for your individual needs.