Prosperity IFA Crowborough, Tunbridge Wells

Your Attitude to Risk – How should this shape your financial planning?

Take our quick quiz to find out.

This article is for information only and no recommendation is being made or should be construed from the contents of the article. Always seek independent financial advice prior to taking any action.

Take Our Risk QuizYour attitude to risk is a very personal and emotional thing. Everyone is different – it all depends on your circumstances, the economy and your personality.

The time frame of your financial goals also has a big influence too. The longer you have to invest, the more risk you can afford to take as you have longer to tweak and change your plans.

For many cautious investors, not taking enough risk does become a very risky strategy in itself to employ. You may not lose money but you may not make enough to achieve your financial goals. But on the flip side, reckless investors may need to tame their strategy when approaching retirement to ensure they reach their goals.

To understand your approach to risk and how this should influence your financial goals, take our quiz below:

Question 1 : If you were offered £1,000 to either keep or the chance to gamble it on decent odds for a potential £100,000, which would you choose?

a. I would take the £1,000 – it’s guaranteed money

b. Could I bet half of it?

c. I would go for the chance of winning £100,000

Question 2 : If you had money invested in a fund which the value then fell by 50%, what would you do?

a. Sell up and go for something less risky

b. Look into the fund, take advice and if it was still sound, hang on for a recovery

c. Buy more to take advantage of the low cost

Question 3 : How do you feel about the current financial markets?

a. Nervous

b. Confused

c. Optimistic

Question 4 : If the current financial down turn in the market continues for another 6 months, what action do you think you would take?

a. Cash in my investments to save any further losses

b. Compare the performance with other similar investments in the market to make sure my IFA knows what they’re doing and are keeping on top of things

c. Look out for other sectors that have fallen particularly far recently and now offer a good buying opportunity

Question 5 : When thinking about investing your money, how long do you plan to invest for?

a. Less than five years

b. 5-10 years

c. More than 10 years

Question 6 : Do you have definitive financial goals that you must meet?

a. Yes – I have a target amount I need to meet for a life event such as retirement or school fees, I cannot afford to miss my financial objectives

b. Yes, to a point – I need my investments to grow but I don’t have a set figure that I need to achieve

c. Sort of – but I am flexible how and when I meet them

Question 7 : What does your current financial situation look like?

a. I have some savings in the bank

b. I have some savings, plus a few small investments

c. I have a large and diverse portfolio of investments

Question 8 : What is your attitude towards your finances in generally?

a. I spend everything I have – and sometimes more

b. I balance my monthly budget and manage to put away extra in a separate account

c. I live within my means and have six months’ expenses set aside in case of emergencies

Question 9 : What are you pension plans?

a. I have a company pension that I pay in to and that’s it.

b. I have a company pension which I try and top up as much as possible when I can

c. I have set up a private pension with especially selected funds which I track regularly

So you have answered the questions – what does this mean for you?

If you chose mostly A’s

You are a very low-risk investor as you chose the most conservative answers. But how does this translate into your financial planning? If the thought of losing money through investments would keep you awake at night, does this mean you should you stick with low risk cash investments?

The main benefit to the Cash investment is the short term element. If you only have a short period over which to invest – i.e. you would struggle to commit to an investment that requires five years or more – then the cash option could be the best option for you, other assets may be too volatile.

However, there are down sides to a conservative approach. If you opt for cash, the returns may well be disappointing. With current Interest Rates at an all-time record low, the returns offered on cash products such as savings and Isa’s are currently as low as 1%.

You need to consider your investment targets: do you need to set aside more money? Or maybe you need to consider taking a little more risk to improve your returns?

To undertake a more in-depth risk assessment and to really understand what financial products would best suit you, contact one of our advisors at Prosperity IFA for a free no obligation consultation. Call us on 01892 300 303.

 

If you chose mostly B’s.

You are a low-to-medium risk investor – you may have conflicting attitudes towards risk, you are comfortable with long term investment strategies and would be looking for a good return but you also may have concerns about taking too much of a risk.

If this is the case, need to think about taking on a balanced portfolio. But before you start assembling this portfolio, you should ask yourself some questions first to determine where you need to compromise. Think about whether you really need such a large return. Can you afford to put more investment in and accept a smaller return?

If so, you can compromise on return and opt for a cash ISA. If not, you may have to compromise on the risk you are willing to take and use equities, bonds or other assets.

To make sure you get the right mix of products, returns and risk, it is advisable to talk to an expert. At Prosperity IFA we have a team of experienced and qualified Investment Managers that can help set up the perfect portfolio for your needs . Call one of our advisors at Prosperity IFA for a free no obligation consultation on 01892 300 303.

 

If you chose mostly C’s.

If most of your answers were C’s you may already have a diversified portfolio, are investing for the long term and have an appetite for risk.

You are a confident investor as most of your answers indicated a willingness, ability or need to take on more risk. The type of investment that you could consider is an equity ISA – a mix of UK and global funds is recommended.

You are more likely to be prepared to take some gambles with your ISA allowance because you have you may have sufficient other investments and a safety net to fall back on.

However, one thing to note is that if you have answered A or B to any of the questions you need look at which ones and consider where your priorities lie – if, for example, you only have a short period over which to invest, equities are unlikely to be the right choice

To really understand the best approach for you, talk to one of our expert advisors at Prosperity IFA. We have a team of experienced and qualified Investment Managers that can help set up the perfect portfolio for your financial objectives. Call us for a free no obligation consultation on 01892 300 303.

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