Manage risks and rewards

Whether you’re cautious or adventurous, learning about the potential risks is essential to successful investing

Taking control of your finances means enjoying the benefits but also understanding the downsides. In the investment world we usually call this ‘financial risk’. But with a little investment know-how you can learn to manage and minimise these risks.

The market

As we all know, the value of your investment can rise and fall as the markets fluctuate. There are no certainties, you might make a profit, or you might make a loss. And if you invest in the overseas markets, your investment may also be affected by movements in exchange rates.

However some investments are lower risk than others. The rule of thumb is that the more risk you take, the more you stand to gain or lose. So it really depends on how you approach risk. If you have a long-term financial goal and are comfortable with greater risk, you might prefer to invest in higher-risk assets like individual Shares. Or if you have short-term financial goals, investing solely in Cash investments could be for you.

However, there is an option which is, in general, less risky than individual Shares but still benefits from stock market performance – Equity Funds.

Funds

An Equity Fund pools smaller investors’ money and invests it in Shares of other companies. This kind of collective scheme can invest in companies across multiple, widely varying industries and geographies, something that’s a lot harder to do on your own with limited resources. By not putting all your eggs in one basket, you can enjoy some peace of mind knowing that the risks and rewards have been spread out.

Get more information on our Funds Overview page.

Understand the risks and potential returns of different investments

So before deciding how much risk to take on, ask yourself:

  • What’s your attitude to risk? Do you have more of a cautious or adventurous attitude to risk?
  • What stage of your life are you at? A lot of people become understandably more cautious the closer they get to retirement.
  • Do you understand how inflation can eat away at your Cash savings? Playing it safe by leaving your money in Cash comes with the risk of losing out due to inflation. You could also be missing out on higher potential returns from other investments.
  • Have you considered diversification? By spreading the risk across a variety of investments you can better manage and balance the risk.

Risks and rewards are part and parcel of investing. Learn to identify and manage the different risks that come with the different types of investment, so you can approach your finances with all the tools and knowledge you’ll need.


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