Demystifying the risk of investing - part 4

Make sure your money works hard as you do.

How much time do you give up to earn your monthly salary? Is it 35 hours each week, or probably more?

When you’re paid, you pay tax and national insurance on your earnings in the UK. Depending on the level of your earnings, you could be giving away almost 50% of every £1 you earn, potentially more.

What you do with your income defines how successful you will be at turning your riches into wealth.

And the good news is, it’s in your hands. You can turn your hard-earned money into much more. All you need to do is give it the chance to grow, by investing it, so you can create the abundant lifestyle you want for yourself.

Even if you earn a lot of money right now, remember being rich is not the same as being wealthy! There is a difference, and it comes from being smart with your money over time. Read my full blog ‘Being rich is not the same as being wealthy’:

What’s clear is doing nothing with your money isn’t a smart option.

In order to help you feel confident in starting an investment, I have covered various topics to increase your understanding.

Through the last 3 parts of ‘Demystifying the risk of investing’ - the uncertainty of stock market returns, the illiquidity of the property market, and the elephant in the room, inflation.

Having spent two decades working with investments, as a wealth manager one thing that I have learned is that you can manage these risks, and the good news is that it is simple for anybody to do once they know-how.

Here are 5 ways you can manage the risk of investing.

1: Invest regularly over TIME and give your investment the time it needs to grow.

Time is your biggest asset as an investor. With time you can:

  • Build up your investment slowly so you can save up more money.

  • Benefit from compounded investment returns, where the returns you make each year are reinvested, and they themselves have the chance to grow. Compounding is extremely powerful.

  • Take advantage of the ups and the downs of the stock market by drip-feeding your investment on a monthly basis. If there is a fall in the market you can benefit from buying in when the market is low. This is known as compound averaging and is useful for those that are accumulating their wealth.

  • Recover from a fall in the market. If there is a crash or a wobble, history shows that in time financial markets are expected to rebound (no predictions are being made).

2: Hold a well-diversified portfolio of investments

Of course, if you buy just one company’s shares and that company fails you are likely to suffer a loss. What most people do instead is hold a portfolio of different investments. That way, if a single company fails, the loss suffered should be offset against the returns generated by other investments you own.

Furthermore, when you invest you will likely hold many different types of investments such as shares, bonds, commodities, property, and cash. The different types of investments usually behave differently from each other, so if the stock market falls, a well-known commodity like gold is expected to go up in value.

This is known as diversification and it is a key tool for creating stable returns over time.

3: Choose how much risk you are comfortable with and need to take

The riskiness of an investment is typically defined by how much its price is expected to move up and down each day. This is known as volatility.

  • Shares are usually riskier than bonds because their returns are more uncertain and the price of shares is generally more volatile.

  • Bonds, on the other hand, pay a fixed known interest each year, meaning bond prices aren’t expected to fluctuate as much as the stock market. This makes them less risky.

  • Commodities, like oil and gold, are usually riskier than shares and bonds because their prices can move by large amounts each day.

How you combine different types of investments within your portfolio will impact its overall riskiness. It will also impact the potential return you would expect, so it’s a bit like a balancing act of what you want to achieve vs how much risk you are prepared, and can afford, to take.

The more bonds in your portfolio the less risk you face. Conversely, the greater the number of stocks and shares, or commodities in your portfolio the greater your risk appetite, and the higher your expected return should be.

4: Appoint an expert

Most people don’t pick their own shares or bonds, they will usually delegate to an expert. The simplest way to do this, when you are investing for the first time, is to buy a readymade fund.

What a fund offers you are:

  • An expert who can spend time, using their expertise, to pick the best investments.

  • Your portfolio will be managed every day, so you can sit back with the knowledge it is being looked after, even if there is a wobble in the market, there is an expert in charge.

  • You can buy a fund that will combine all the different types of investments, or asset classes, for you. This is known as a multi-asset fund.

There is a fee for the expertise of a fund manager. The fee is taken from the return of your investment and you can keep an eye on how they are doing when you have an annual review.

5: Have enough money in cash for an emergency fund.

Although you can access your investment portfolio (unless the tax wrapper prohibits you, such as a pension) at any time, you want to avoid the need to withdraw funds at the wrong time.

If you are faced with an emergency and need to get your hands on some cash, but your portfolio has dipped in value then, if you need to sell your investments at this point, you are locking in a loss.

However, if you can rely instead on your emergency fund, leaving your portfolio intact, it has the chance to recover.

What’s important to remember is that you control the riskiness dial of your portfolio.

This is your personal attitude to risk.

No advice is being given, I do not know your personal circumstances. Past performance is not an indicator of future returns. Investing puts your capital at risk and you may get back less than what you invest.

How to get in touch

If you would like to learn more about investing, as a financial coach, I can help you to understand more about your money and help you to invest with confidence.

Email me at to arrange a discovery call.

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