Building a solid investment strategy through good and bad times
During this period of economic turbulence, what strategy should investors take? Your own attitude to risk is crucial. You may be comfortable to live with capital risk if it means the chance of a higher return in the end. Alternatively, you may be ‘risk averse’ and don’t want to risk your capital under any circumstances.
Whatever your investment strategy the starting points should be the same, and we can help you identify the type of approach best suited to your particular needs and preferred balance between risk and return.
Take a look at some possible strategies for cautious, moderate and aggressive investors.
The cautious investor understands that they need to achieve a return better than the rate of inflation to maintain their financial position and that in order to beat the returns available on cash deposits they may need to accept some stock market risk. However the cautious investor is uncomfortable about sharp falls in value and wants to invest in stable investments where the risk of this happening is limited. Keeping ahead of inflation and getting a slightly better return is more important than getting a high return only by accepting a higher level of risk.
The moderate investor wants to see their money grow over the medium to long-term 5 years. As well as beating inflation the moderate investor knows that capital growth available from investing in the stock market gives them an opportunity of achieving this. Although not happy about a significant short-term set-back the moderate investor is willing to accept the risk as they are investing for the longer-term. However sustained falls over a longer period might persuade the moderate investor to move to less-risky investments.
The aggressive investor wants to see real capital growth in the short-to medium term of between 3 to 5 years and isn’t concerned about short-term fluctuations. This investor will be prepared to take on a wide range of stock market investments including potentially volatile shares where there are high potential gains but also where the risk of losing money is higher. The aggressive investor may offset these high risk investments by diversifying into lower-risk areas and may only be making those high risk investments with money they could afford to lose.
The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.