How much Investment risk is right for you?

A 5 to 10-minute read, depending on your speed.

This is the first of three Insights to help you consider how much investment risk might be right for you – on each of your financial life goals.

These Insights are written to help all investors (novice, recent and experienced) because we all need to ensure that the level of risk we take on our investments is right for us personally.

The #finfluenza epidemic

You also need to be aware that no one can answer the question of ‘How much risk is right for you?’ in a book, blog, video or Social Media post.

Absolutely no one (friend, family member or #finfluencer) can tell you what’s right for you unless they fully understand:

1. The financial planning process – and they are qualified to give financial advice.
2. Your personal ambitions – for yourself and any others you want to help.
3. Your current financial circumstances – and the outlook for the future.
4. Your attitude to (and capacity to take) investment risks on your money.

Yes, some of the self-acclaimed financial gurus (on YouTube and TikTok) are entertaining. And some, if you know who to follow, understand some aspects of financial planning and investing.

The problem is that none of them know anything about you, so they cannot tell you what investments are best for you.

And they’re breaking the law if they try!

So, you need to take control of this process.

You need to consider the four factors we’ll cover (in the second of these insights) to work out what investment risk is right for you on each of your financial life goals.

All good financial advisers will consider these four points in advising you, and if you learn them, you can be sure that you do.

So, let’s get into this now.

Are your financial ducks all lined up?

Before you Invest in anything that carries a risk to your money, you should have various financial foundations in place.

For those who need it, we’ll explore those foundations further in future Insights.

So, stay tuned for those. 

For now, we’ll assume you’ve attended to all the basics, which means:

1. You spend less than your income (from all sources) each year. And you have enough (accessible) cash savings for emergencies – like a temporary loss of work or expensive repairs to your car or your home.
2. You’ve made arrangements to provide enough money to any financial dependents in the event of your death or serious disability. And your loved ones have clear instructions for dealing with your financial and material possessions in the event of those disasters.
3. You’re on track to receive a full state pension, and you’re receiving any other state benefits you’re entitled to.
4. You’ve paid off any credit card or other expensive debts.
5. You’ve repaid (or you’re on track to repay) your mortgage before you retire.
6. You have (or you’re building up) any additional funds you need (in bank savings or other low-risk funds) to pay for shorter-term goals like holidays, seasonal costs, and car replacement.
7. You’ve designed a sound financial life plan. So, you know what you want your money to do for you (and any loved ones) in the future.
8. You know how much money you’ll need, in today’s money terms, for each of your goals. And when you’d like to have that money available.
9. Your cash and investments are held in the most suitable types of ‘money box’.
   • Examples of money boxes (or Tax Wrappers, as they’re sometimes called) include Pension plans, ISAs, Lifetime ISAs, General Investment Accounts, Insurance Bonds and more.
   • If you have money in the wrong box, you will miss out on FREE money from your employer or the government – as tax relief or savings incentives. And that makes it unnecessarily difficult to achieve your goals.
10. You’re not overpaying for these money boxes or for any advice on all this.

If you don’t yet have all of those ducks lined up, talk to a good financial planner.

They will ensure you attend to those matters as part of your financial life plan.

Do you understand the basics of investing?

If you plan to invest (or already have money invested), you need to understand why investing (in ordinary company shares) tends to beat bank savings accounts over the long term.

So, that’s what we’ll cover first.

For financial advisers, planners and coaches

This educational Insight is one of many we’ve created for you to use under license in your business to help more people make better financial decisions – and see the value of professional advice.

You can brand these licensable insights to your business style and add your own firm’s calls to action.

If you have any questions, please email me at hello@paulclaireaux.com