News/Events

Informed Risk [4th April 08]

As I write this, it would appear that spring has finally arrived. There are lambs in the field, the flowers and trees are bursting into life and the local rogue squirrel is eating the buds on my camellias. There is also a lot of spring cleaning going on around me.

Why is it that at this time of year our thoughts seem to focus on the future? Perhaps the anticipation of summer, but in my experience they no longer seem anything to look forward to. The summers always seemed so much better when I was young? The thing is I don’t really know what this year’s summer will bring. It could be the best yet but then again it could just be another wet and windy affair.

Investment markets are similar in a way. No matter what our experience is we can never know for sure what lies ahead. Recent turmoil in the financial world underlines the need to ensure that we are always comfortable with the risk we are taking to achieve the returns on our investments we want.

We used to say ‘as safe as houses’ and ‘money in the bank’ but can we really depend on these type of investments these days. Recent difficulties experienced in the banking world and the drop in commercial property values which look to overspill into the domestic market have given cause for concern.

So what do we do for the best? To start with, take time to really think about the amount of risk you are willing to take with your investments. What might be low risk to one person may be unacceptably high for somebody else. Your financial adviser should be able to help you with this and can then follow up by giving a recommendation of the type of assets; equities, bonds, property and cash, for example, you should be investing in and in what proportions. Research shows that if you get this right you are best part to investing successfully.

If you are invested in a way that matches the amount of risk you are willing to take there should not, except for the rare occasion be any movements in the value of your investments you are uncomfortable with.

My daughter likes to do the opposite to whatever most others do. When it’s sunny she likes to keep in the shade, however that’s probably not a bad idea these days, but when it is pouring down with rain and blowing a gale out she goes for a walk. Now in the investment world this would be know as a contrarian view which means that she would be most likely to buy when most others are selling and sell when many are buying. If you think about it this makes sense simply on the basis of supply and demand but it takes a brave investor to go against the grain.

In writing this article, I am considering the risk that by the time you read it, the rain has probably set in for the near future. But then, if I do nothing over concerns for what the future will bring, you will never get to read it, and that’s not a risk I am willing to take.

When sitting on the sidelines we achieve nothing in the long run, by taking informed risk we all achieve a lot more.

This article was written by Langtons - Published in the Western Morning News, Money, 4th April 2008