Risk is a fundamental part of any investment and, arguably, no investment is meaningful without it. The amount of risk you take should be a personal decision and can be influenced by a number of things. To some extent, risk can be subjective as only some might find a 50/50 chance of return a risk, while most, if not all, will agree that even a 5% chance of return is a risk. This article will help you determine your personal risk level and see how this relates to specific investments.
Low risk
A low-risk investment might be taken by someone who has more to lose or is less willing to take a risk. They offer stability and security, therefore, a way to provide a regular income or capital preservation. These include investments in cash or government bonds, real estate or money market bonds, as investing in a savings account is less risky than stocks or shares. Real estate investments are also considered to be potentially profitable investment options as they are tangible in nature and have the capacity to generate rental income and capital appreciation over time. That being said, sometimes, these investors need to buy multiple properties as investments. In such cases, they might not have the required capital to do so. Lending firms like Pine Financial Group can be a solution for them in such instances. These firms can provide the required funds to the investors so that they can go about investing in multiple properties without the worry of not having capital. The varied forms of property investments can also provide diversification benefits and a hedge against inflation, as well as tax advantages such as depreciation deductions and potential capital gains tax deferral.
This is also a good choice for people who need money quickly. For example, if you have 20,000 and need to put a deposit down on a house next year then you will be likely to choose low-risk. However, if the 20,000 is going towards a beach house in the distant future, you might instead choose a high-risk investment because there is more time to recover any losses. There is also less chance of being forced to sell out of position too early.
Medium risk
Medium risk investments are more long-term investments with moderate returns, usually of around 5-12%. A medium risk investor often diversifies their investments by investing in a range of things, while still trying to maximise returns. These might include shares, bonds, property or stocks that are good for long term investment.
High risk
A high-risk investment is generally taken by those with good knowledge of investments. These are typically investors who want to achieve the biggest returns possible and more importantly, can afford to take more risk. If successful, they can get returns of 10-30%. International stocks are the most commonly thought of as high-risk investments. A high-risk investor will put a high proportion of capital into stocks and shares, seeking out those with the potential for the greatest rewards.
There are no precise methods for calculating risk, therefore it frequently depends on the investor’s unique judgment. The choice to make a high-risk investment like buying GWG L Bonds should not be made carelessly and should only be done if you can afford to take on the risk. Since higher risk investments are engagements in which you don’t want to spend too much of your time planning, the best approach is to plan for them in account for the whole year ahead.
Wrapping up
That being said, to ensure you are making the right investment choices speak to a profession such as, Partridge Muir & Warren, a wealth and investment management firm in Surrey, who can provide you with personal advice. They have years of experience and will help you make an informed decision, so you can achieve your financial goals.