nvestors can be divided into two broad groups: income seekers and growth seekers.
Whichever you are, it is important to establish your investment goals from the outset. This helps to determine your tolerance for risk, thereby ensuring that you select the most appropriate investments for your portfolio. Risk tolerance is actually one of the most important factors. Traditionally, there is a direct relationship between the amount of risk you take and the amount of potential return you can expect.
For example, a 30-year-old, with no financial obligations other than rent and savings in a deposit account, might decide to invest in a pension for later in life. With this long-term investment horizon – 35 years or so – it might be appropriate to take on more risk, as any short-term ups and downs can be absorbed in favour of the potential for higher long-term gains.
However, a 30-year-old receiving an inheritance payment, with which they plan to buy a house in five years, needs to be more cautious. Over this relatively short period, they would be more vulnerable to the ups and downs of the market cycle, and would be best served by a relatively cautious approach that will not put their capital at risk. It is important to bear this relationship in mind when making investment decisions. Perhaps consider a range of less volatile investments such as cash, UK bonds and UK equities, to build a core, to which riskier options can then be added. These riskier options can then be adjusted as market conditions change.
Whatever your age we can ensure that your attitude, circumstances and the investment term is taken into account when reviewing or making investments. In almost all situations investors circumstances change over time and it is essential your investments change to meet your approaching objectives.
If your circumstances have recently changed or you’re anticipating a change in lifestyle in the next few years, such as retirement or moving house, then get in touch so that we can review your finances and update your portfolio if necessary.