Understanding Investment Risk
| During the last few years of the 2000’s we all saw the effect that stock market falls had on pension funds, investments and share prices. We all saw how the values of pensions and investments fell. If you were one of these people that has been affected by the stock market falls, it’s understandable that you might still think twice about investing in shares (non cash funds). However, we all know that leaving your money in cash for a long time may not necessarilty generate the best returns.
As 2015 has begun with historically low interest rates, many people are now seeking alternatives to deposit accounts. However the levels of risk associated with alternative investment options and also the investors attitude and capability of taking on risk must be carefully assessed in considering suitable choices.
It All Begins With A Plan……Before you begin to choose a suitable investment you will want to consider what are your investment objectives. Setting these objectives correctly based on your current situation and knowing your investment profile will form the basis for choosing the correct options. Rating FundsIt is important to note that most managers of Investment and Pension Funds are now broadly in line with guidelines received by the European Securities and Markets Authority (ESMA) in the context of Risk Rating their Funds. The ratings are based on a scale of 1 to 7 meaning that you can now readily identify the level of “risk” pertaining with 1 being at the very lowest level and 7 the highest. Investor Attitude to RiskA very important piece of work that should be done as part of the decision making process is to take full account of an investors attitude to risk. There are many “Risk Attitude Questionnaires” that help to determine this and help to match the investors requirements with the huge range of investment fund options available in the market. Apart from recording the investors view it also takes account of really relevant matters such as:
Capacity to Bear RiskThis is another very important factor to take into account when constructing your portfolio. It is one matter to say you can accept risk in order to achieve high returns but another key factor must be to match your profile with your capabilities.The real message in all of this is that while there is a myriad of options and choice it is vitally important to seek and have independent advice available to you. If you need any further information on this please don’t hesitate to contact us. Call Aidan Wall at: 046 924 0961 or email: aidan@lifetimefinancial.ie |