When discussing investment solutions with Three Counties’ clients, “Risk” is something that plays an important part in the conversation, as David Simpson explains…
Risk means different things to different people so it’s imperative to define what it is that we actually mean. It is vital in investment planning that clients making long-term decisions expose themselves to the appropriate level of risk – certainly not too much, but also not too little, to try to ensure that objectives are met.
While not an exhaustive list, the following are some of the key areas which we seek to consider as, together, we explore what our clients are seeking to achieve;
- Market risk: The risk of investments falling in value because of events that affect the whole market. Included here would be Equity risk (this applies to an investment in shares and is the risk of loss because of a fall in the market price of shares), Interest rate risk (this applies to debt investments such as bonds – for example, if the interest rate goes up the market value of bonds will drop) and Currency risk (the risk of losing money due to a movement in the exchange rate).
- Liquidity risk: The risk associated with being unable to sell an investment at a fair price when required. How accessible are the funds and to what extent is access required?
- Concentration risk: The risk of loss because funds are concentrated in one investment or type of investment. Diversification, or spreading the risk, is vitally important in formulating successful investment solutions.
- Credit risk: The risk that the government entity or company that originally issued the bond won’t be able to pay the interest due or repay the principal at maturity.
- Inflation risk: The risk of the loss of purchasing power because the value of your investments does not keep up with inflation. Inflation erodes the purchasing power of money over time and is particularly relevant if you hold cash or debt investments like bonds. Both shares and real estate also some protection against this specific risk.
So as you can see the whole area of Risk is more varied than one might expect. With that in mind, we also have published a range of content on, and around, the subject of risk, as you can see below:
If you would like to understand what Risk might mean for you in your specific situation then do get in touch – we would be delighted to have a conversation with you.
If you wish to discuss the contents of this blog post please contact david.simpson@three-counties.co.uk or telephone the office on 0191 230 3034.
Disclaimer: The above content does not constitute financial advice. Your circumstances may differ from those outlined and you should seek advice which is relevant to your own situation.
