Considering Investment and Risk
Since 2008 when the financial crisis first erupted, interest rates in the United Kingdom have fallen dramatically and at the present time the UK base rate remains at 0.5% where it has been for over five years. Because of this, income available on low risk investing such as cash deposits has remained quite low and even more so after erosion by inflation is taken into account.
What is an investor to do?
There are a number of alternatives which could be pursued. All however are not without risk and even cash investing is subject to a ceiling for compensation per institution of £85,000. If alternative investing is pursued in markets, the following types of investment risk should be considered carefully.
Debt or Stocks guaranteed by Governments as to income and capital may be termed low risk. Securities such as bonds with a high credit rating may also qualify. However, this category will almost certainly exclude investment in shares. Cash investments with Banks, Building Societies and National Savings may also be termed Low Risk.
Most securities from the leading 350 United Kingdom companies or their equivalent from overseas markets considered most suitable for investment, including the majority of Investment Trusts and Unit Trusts.
Securities of smaller companies, especially those established for only a short time. Larger companies encountering difficulties. Investment Trusts and Unit Trusts with higher levels of investment risk, such as some individual country funds. Options and Warrants of every type and all other Derivatives. Excessive concentration of investment in smaller companies, which might otherwise be considered Medium Risk. Clearly professional advice is required before pursuing any strategy along the above lines and certainly beyond low risk investing. However, even professional advice is not itself without risk especially if taken from an adviser who is more interested in commission or selling a product than you! It is a question of considering carefully how much risk you are prepared to take and if you simply cannot contemplate investing in markets or your investments rising and falling, the sensible approach is to confine your investing to low risk.
John Atkinson, Chartered Wealth ManagerGeorge Ide