Attitude to risk: What it means and what you need to know

July 2019

Attitude to risk: What it means and what you need to know

Any conversation with an independent financial adviser about investments or pensions will bring up the ‘attitude to risk’ question. They will want to know what it means for you and where you sit on the risk tightrope. But what does that mean exactly and what do you need to consider to determine what your attitude to risk is? Read on for our quick guide which sets out the basics or get in touch with our Plutus Wealth independent financial experts at www.plutuswealth.com for fully personalised advice.

What is risk?

Savings, investments and pensions are designed to help you grow your personal pot of money. No matter its size, large or small, that pot is important to you and you want it to work as hard as possible for you.

Your money can grow by earning interest in a savings account or by being traded as stocks and shares on the stock market when invested in a pension or other investment plan.

With either form of investment as well as the potential for growth there is a possibility that your money will not grow as much as you hope, or that you may even lose some of your initial investment.

Risk comes in the form of:

  • Failure of a financial institution
  • A lower interest rate than you could find elsewhere
  • A drop in share prices
  • The possibility that inflation will be greater than the rate at which your money grows

Your financial adviser will work to strike a balance between those risks to help grow your investment in line with your needs.

How do you determine what your attitude to risk is?

Your attitude to risk is about how willing you are to take a loss should any of these risks become a reality.

At the most basic level the greater the risk, the greater the reward. But that could come at a cost. Determining your attitude to risk will help to find the best balance when deciding how best to invest your money.

Here’s what you need to consider:

  • What can you afford to lose? No one wants to think about losing their money but being aware of the risks and knowing what your limit is are smart ways to approach investment. If you have financial commitments that you must meet or others who depend on you financially then be sure to factor those in and let your independent financial adviser know.
  • What are your goals and timescales? A longer timeframe helps to iron out market changes and volatility, while a need for a quicker return is better suited to a less risky approach.For example, if you are saving up to buy a car or put down a deposit on a house sometime in the next five years, investing in a savings account is a safer bet.On the other hand, if you have a longer-term goal or are setting up or moving your pension plan then investing your money in the stock market becomes a viable option. The longer timescales mean that your money can better absorb any market capriciousness. However, as you approach that goal it is prudent to switch to a less volatile option which will ensure you lock in gains made and reduce the chances of short-term market changes that could lead to potential losses.

Your financial adviser will take the time to find out more about you, what your goals are, how quickly you need to make that money pot grow, and what your attitude to risk and loss are. Together, you will draw up an investment plan that is designed to work for you and review it on a regular basis to ensure it is continues to work for you over time.

Personalised advice

If you are looking for advice or help with your savings and investments our Plutus Wealth team of independent financial advisers is here for you. Give us a call on 020 7871 5200 or drop us a line at info@plutuswealth.com when you are ready and we can take it from there.

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