Risks That Are Worth It

A wise man said that to profit without risk and to experience life without danger is like trying to live without being born.  So which risks are worth taking?

Even the most risk-averse people take risks every day. There are routine risks to our safety such as crossing the road, riding public transport, exercising at the gym and using electrical equipment.

Then there are the "big decisions" like selecting which course to study at University, choosing a career, finding a life partner, buying a house and having children. These are all risky decisions, all uncertain, all involving an element of fate.

In making these decisions we seek to mitigate the risk by carefully weighing up alternatives, researching the market, judging possible consequences and balancing what feels right emotionally and intellectually, both in the short and long term.

Sometimes we ask an independent person to guide us in making our decisions. They do this by providing an objective assessment of the potential risks and rewards of various alternatives, by taking a holistic view of our circumstances and by keeping us free of distraction and focused on our original goals.

This is the same for investment and is where a good financial adviser will add value - by understanding the relationship between risk and return and knowing how to build a portfolio to meet the specific needs, circumstances and aspirations of the individual client.

We know that many people invest without the help of an adviser and take risks they don’t need to take. They gamble on individual stocks, rely on forecasts, chase past returns, fail to rebalance their portfolios to take account of changing risks and run up unnecessary costs and tax liabilities.

Understanding investment risk begins with accepting the market has already done a lot of the worrying for you. Markets are highly competitive, which means that new information is quickly built into prices, so instead of trying to second guess the market, you work with it and take the rewards that are on offer.

Your biggest investment is by spending time with an adviser to build a diversified portfolio designed to meet your long-term requirements, then meet them periodically as your needs change and to ensure you are still on course.

It is important to understand that risk can never be totally eliminated. If there was no risk, there would be no return, but your chances of a good outcome are far greater if you use the accumulated knowledge of financial science and research and working with an adviser who knows you.

Risk and return are related but not all risks are worth taking, so don’t try and do it alone.