Here’s our outline of some real investment risks you’re taking with your money, and how to manage them.
You’ll find a full evaluation of your attitude to investment risk when you use Moneycube’s online investment service.
1. Missed opportunities
Taking no risks is a risk in itself! Lots of us fail to give our money the chance it needs to grow. Remember, the more you are able to give your money time to recover from short-term shocks, the more you can afford to invest in assets with potential for high returns.
2. Inflation
This is the one we’re all taking every day with our cash. Our money in the bank is being eroded as it buys less over time as prices go up. Moneycube’s solution is to help you put at least some of your money in places it has a chance to grow at a rate faster than inflation.
3. Eggs in one basket
Lack of diversification is an investment risk most people can solve quite easily. The answer is to spread your money around, between a range of banks, shares, or any other asset class.
This one’s for pure bank savers too. If you have more than €100,000 with one institution, it’s worth moving it to another bank to avail of Ireland’s Deposit Guarantee Scheme.
Remember though, if you have more than this amount in cash and don’t need it short term, you should almost certainly be thinking about saving it somewhere other than a bank account (see inflation risk above).
4. Currency and political risks
This is the chance that some unexpected external event changes the financial outlook. For most Moneycube customers, Brexit is the clearest recent manifestation. The political and economic uncertainty it has caused has helped sterling get a lot cheaper.
That’s bad news if you have significant savings in sterling, especially if they are in cash. (If they are in investment funds and shares it is not so bad, as the underlying investments are often not in UK assets).
The response here is to consider the currency risks you’re taking in your investments. If your investing timeline is short, you’ll want to minimise your exposure to the risk of a significant decline in the Euro value of your investments. The way to do that is to invest largely in Eurozone assets.
More on currency and political risks…
5. Counterparty risk
This is the risk that the institution holding your money is unable to pay you back your funds. Moneycube investments are always with well-capitalised investment providers with strong balance sheets and track records to minimise this risk.
6. Timing
Timing’s never certain when you make an investment. Maybe you’ll do better if you bought or sold a day later. In truth, no-one knows. A common way to manage this risk is to drip feed your investment in several chunks, rather than make it all in one go. That way, the average cost or sale price of your investment will average over several periods.
Investment funds can help
There’s no totally risk-free option when it comes to your savings. Even cash in the bank comes with inflation and counterparty investment risk. Selecting a suitable investment fund could enable you to manage these risks in the right way for you.
Further reading:
Read more on investing in a low-risk portfolio here.
When is the best time to invest?
Some types of investment risk… and what you can do about them
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