For the Risk Adverse Investors
Understanding your appetite for risk is the very first step of investing. It is fine if you lean towards being a cautious investor, and there are options if you want to ensure that at least your initial investment is protected. There are also tips to move from being risk-adverse, to being a low-level risk investor, enhancing your chances of a gain.
This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it
Get back at least what you put in
Assessing your attitude to risk involves working out how much of your cash you are prepared to lose. Clearly, the aim of investment is to make a gain, however, there are typically some risks involved as decisions are made on future predictions linked to things that are often out of our control, like the market, the economy, government decisions and so on.
If the answer is that you want to get back at least what you put in, this is fine. A financial adviser can work with you on selecting specific investments that meet your requirements.
Of course, it is important to also have a realistic expectation of the amount you could gain, as well as understand the possibilities of greater gains if you were prepared to dip your toe into a slightly higher-risk option.
Solution 1 – Premium Bonds
For the adverse risk investor, Premium Bonds are a possible option.
Premium Bonds give you the opportunity to win back money, although at the very least they will guarantee to pay back your initial investment.
The broad current average gain on Premium Bonds is approximately 1.25 percent, so it is possible to make a small gain, if your luck is reasonable.
Solution 2 – Fixed Rate Savings Bond
An alternative option is to buy a Fixed-Rate Savings Bond from a bank or building society.
In this situation, your money is tied-up with them for an agreed period of time, typically five years, but other options are available.
The bank of building society in exchange, agree to pay back a set level of interest during the time of your investment. As an example, Secure Trust Bank pay 2.01 per cent on a five year investment.
There are many more options though and a financial adviser can help you decide which could be best for your budget and timeframes.
Solution 3 – ISAs and regular savings accounts
ISAs and regular savings were a popular choice for investors when rates were higher. However, as returns are currently so low, most account holders are looking to diversify so their money can earn more for them.
Saying that though, it is still a wise move to utilise your ISA allowance each year, because any interest earned is at least tax-free.
Most doctors and dentists still choose to keep money in an ISA as it is flexible savings, even if returns are not as high as previous years.
Opting for a Stocks and Shares ISA can bring greater returns than a simple Cash ISA.
How to become a low-risk investor?
There are a few ways to move from being completely adverse to risk, to being comfortable with low level risk investments.
One of these is to have a cash buffer, as this eases the fears for investors that they will stand to lose everything. This way you can feel reassured that your savings pot will remain intact. Six months of income is a good benchmark.
Secondly, working with an experienced financial adviser can also help to reassure you that you are making the right investment decisions.
Choose low-risk investments and be comfortable with a five-year plan, as this enables the peaks and troughs of the stock market to be navigated.
Investment 1 – Absolute Return Fund
For a low level risk investor an Absolute Return Fund aims to give you a positive return, regardless of stock market activity.
Returns are often not the highest, and annual growth is not always achieved, however these types of investment protect your money better than most investment funds and in time can see a reasonable return for the level of risk involved.
Investment 2 – Strategic Bond Fund
An alternative option is a Strategic Bond Fund, which is investment into a collection of bonds, typically corporate bonds or government gilts.
This gives flexibility to choose when to invest in various types of bond, instead of being committed to just one type.
Expectation management
As with all investments and financial matters, it is important to always be realistic with your expectations regarding results.
No-risk and low-risk investments tend to bring lower returns. However, the comfort of knowing you will get back at least what you put in, with perhaps a little bit extra, is worth your weight in gold, if it means you can sleep at night!
Take these small investment steps first and build from there. The earlier in life you start to make investments, the better, as it gives you more time to ride the investment wave.
Want to discuss investment options? Talk to Darren
Dental & Medical Financial Services have been helping doctors and dentists with investments for over 25 years. Whether your attitude to risk is adverse or pro, we can help find investments that suit you.
Tel: 01403 780 770