Investments And Risks

It's impossible to know in advance which are going to be the worst risks to take you can't predict with any accuracy a major stock market crash, a period of runaway inflation, or a nosedive in interest rates, though you can be fairly sure they'll all come to pass if you invest for long enough. The best strategy is to choose a mix of investments with different balances of risk and return to form an investment portfolio which overall reflects the amount of risk you feel comfortable with.

TIP - Never put all your financial eggs in one basket. Spread your savings across a mix of investments.

This strategy also extends to most investments of one type. Suppose, for example, you invest some of your money in shares. Putting a lot of money into the shares of just one company would be a high risk strategy - bad profits or a strike, say, could topple the share price. If you buy the shares of several companies, then a fall in the share price of one of them will affect only part of your investment - spreading your money will reduce your exposure to that risk. Similarly, consider spreading your investment across shares in companies in more than one sector - some in oil companies, some in food companies, some in electronics, and so on and perhaps more than one country. Similarly, if you invest in unit trusts or investment-type life insurance, say, it's a good idea to spread your money across several trusts or companies.

WARNING When an investment offers returns which seem too good to be true and are out of line with returns being offered by similar schemes, the alarm bells should start ringing. Check carefully what risks are involved - extra returns nearly always mean extra risks - and consider whether you want to take them. If no extra risks are apparent, be suspicious - is the scheme above board?

WARNING- Investors in the UK are now covered by a fairly high standard of protection under the Financial Services Act 1986 (see Section ), though even this has loopholes. But standards of investor protection abroad vary considerably from one count?), to another. So be ye?), wary of investing with an offshore company. If you want to invest abroad, stick with a UK company which runs UK-based funds or trusts specialising in foreign investments.


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Basic Investment Strategy

How long can you invest?

If you need to get at your money easily, or might need it back at short notice, avoid investments where you have to give a long period of notice before you can withdraw your money (for example, building society 90-day notice accounts), or where there are penalties if you want your money back too soon (for example, many types of life insurance). Don't commit yourself to regular savings schemes if you're not sure that you can keep up the payments - choose a more flexible investment where you can save varying amounts at irregular intervals.

How much risk... see: Basic Investment Strategy


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