If you’re used to saving regularly, progressing to investments might not be a stretch for you. And, if you’ve some money set aside already, that’s even better. For most people, investing can form part of a bigger financial plan. It’s a tool that can be used to help make your money work harder and help reach important financial goals, like putting your children through college, helping them onto the property ladder or securing your own home and helping build your retirement nest egg. With such important ambitions driving your investment goals, it’s important to create a plan that’s tailored specifically for you.
Your plan should take account of things like the time frames you’re most comfortable with, your attitude to risk and affordability – because you don’t want to have to dip into an investment pot every time you need a little extra cash. An appreciation for risk and setting objectives will help you stay focused and make smart, long-term decisions. If your financial plan includes a number of goals that have different time frames then you should consider dividing your money in to different pots and investing according to the timeframe you have in mind.
Understanding your tolerance for risk is essential before you embark on any level of investment. Everyone loves the idea of high returns, but not everyone has the stomach for high risk. You can’t put a price on peace of mind and anything that causes undue stress or keeps you awake at night isn’t just a bad idea, it’s completely unnecessary, because there are opportunities for every risk appetite.
It stands to reason that lower-risk can mean lower potential losses, but low-risk portfolios also come with limits on potential gains. So, it’s about weighing up what’s more important and what you can live with – the likelihood of small, incremental gains in less volatile markets, or the chance of big returns and the higher risk or similar losses in faster-paced, changeable markets? It’s your call entirely.
All investment assets experience value fluctuations. Lower-risk assets tend to have fewer ups and downs and lower potential for return, while higher-risk investments can produce better long-term returns for those prepared to risk more.
However, it shouldn’t be a case of either or. You can have the best of both worlds. The combination of less volatility with lower-risk assets and potentially higher returns from faster-moving asset classes is available through multi-asset funds offering exposure to a wide variety of assets.
Time and a diverse investment that helps you to weather market turbulence, is a much smarter investment plan than trying to time any single event or upturn.
Con Friel & Company help clients assess their appetite for risk, which will be important when clients come to make decisions about where they want to invest and how much.
Remember your investment goals and even your risk appetite can change over the course of your life and your financial plan should be revised if or when your needs change.