Capital at Risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
If you ask most people to describe a typical investor, they might suggest someone in a suit with a briefcase full of cash or a character from The Wolf of Wall Street. They might also describe someone who has several computer monitors in their study and spends their life reading the Financial Times.
Investors aren’t so easily pigeonholed today though. Indeed, the landscape has changed in the wake of the pandemic and many more people are now investing money online in the hope that they can grow their savings. While there are no guarantees that anyone will get back what they put in, regularly investing small amounts into a diverse mix of stocks and bonds can often help counter inflation and grow a pot that could, for example, go towards a deposit on a house or fund your lifestyle in retirement. In uncertain times when inflation is nudging double digits, this could make more sense than holding cash in a bank.
You are already an investor if you have a pension or are part of an employee share scheme at work. And if you’re a homeowner, you’ve probably invested a significant sum in your property. Being an investor simply means you have money in more places than your current account. This money could make a return that will increase over the long term rather than just sit in a savings account because high street banks only tend to offer low interest rates, certainly nowhere near enough to combat inflation.
When it comes to what assets are most appealing to an investor, the world is your oyster. Shares and bonds are the most common asset classes, and they include everything from UK supermarkets and Australian government bonds to Asian technology companies and German car manufacturers. You can also invest in all manner of global commodities like oil, gold and wheat. And then there are the more familiar asset classes like cash and property.
Commodities risk: trading in derivatives on physical commodities is speculative and can be extremely volatile. Market prices of derivatives on physical commodities can fluctuate rapidly based on numerous factors, including: changes in supply and demand relationships (whether actual, perceived, anticipated, unanticipated or unrealised), weather, trade, fiscal, monetary and exchange control programs, political and economic events and policies, disease, pestilence, technological developments, changes in interest rates, whether by through government action or market movements, and monetary and other governmental policies. The current or “spot” prices of physical commodities may also affect, in a volatile and inconsistent manner, the prices of futures contracts in respect of the relevant commodity.
Depending on the depth of your pockets and attitude to risk – shares are usually riskier than bonds – you can even invest in companies that mirror your life interests. Or you could choose anything from healthtech or sustainable developments to cosmetics or pet food.
Equities risk: The value of equities and equity-related securities can be affected by daily stock market movements. Other influential factors include political, economic news, company earnings and significant corporate events.
Fixed income risk: Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.
If you’d rather not pick something yourself, you can invest in a basket of assets created by a fund manager. They actively choose where to invest your money and try to beat the average market return. Index funds don’t have a team actively managing them day-to-day but they also cost a small fee. They tend to track specific markets like the largest 100 UK companies or the 500 most liquid stocks in the US. As these markets go up and down, so will the value of your investment.
Regardless of how you build your portfolio, there are several basic rules to follow. Firstly, it’s always a good idea to have a clear goal in mind and a realistic timeframe for achieving it. This will help you stay focused. Secondly, a fund’s annual management fee can affect the amount of money you make, so it’s worth shopping around before you commit. Thirdly, it’s risky to bet everything on one stock in case that company, which may have seemed safe and profitable, suddenly goes bust. Spreading your investment over lots of different companies and including a mix of stocks and bonds will lower your overall risk. And fourthly, markets fluctuate regularly in the short term but they tend to rise over the longer term, so investing is usually seen as a long-term process.
Risk: Diversification and asset allocation may not fully protect you from market risk.
If you decide that you’d like to start investing but want to know more about the risks and rewards, you could speak to a financial adviser. Under UK law, they are required to put your interests first and charge a transparent fee rather than taking a .
Risk: Investors should refer to the prospectus or offering documentation for the (fund’s/funds’) full list of risks.
