For over a decade starting in 2010, The Central Bank adopted policies that manipulated interest rates and embraced loose monetary strategies. This approach saw stock markets emerge as clear winners. However, with the current energy and cost of living crisis, it’s essential for stockholders to review their portfolios. A diversified and shock-proof portfolio is crucial to weather potential storms.
The Dilemma of Surplus Savings
A challenge in the current climate with the manipulation of interest rates and the burden of high taxation, finding low-risk havens for surplus savings has become elusive. Personal circumstances and the ability to deal with financial risks have now become paramount. For instance, an elderly widow with a limited state pension might not be the right fit for the stock market. On the other hand, a young professional with a promising future and rising income could consider long-term investments, given their potential to offset any future losses.
Grasping the Risk Spectrum: Knowing Where You Stand
Your Relationship with Risk To understand your risk tolerance, consider the following:
- Are you financially resilient enough to endure losses without jeopardizing daily expenses?
- How do you feel about negative deposit returns due to DIRT and the diminishing purchasing power of your savings?
- Are you aware of the cyclical nature of investment markets?
- Can you afford the patience required for market recoveries?
Based on these questions, you can identify if high-risk investments such as stocks or real estate are apt for you.
The Role of Age in Investment Decisions Risk and age often go hand in hand. For example:
- Young adults saving for retirement might consider higher risks for higher rewards, given the long investment period.
- Individuals in their 50s should exercise caution, especially with retirement looming on the horizon.
- Parents aiming to finance their children’s education shortly might opt for safer bets.
Aligning Investments with Risk Profiles: What Are Your Options?
For the Cautious Investor Traditional low-risk options such as State Savings Certificates and Bonds have lost their sheen due to inflation. With price rises and higher taxes, the real value of these investments deteriorates. The once-reliable bond markets have also become vulnerable.
For the Intermediate Risk Taker Unitized investment products, diversified by asset classes, can offer resilience for those with a moderate risk appetite. By periodically buying units, investors can mitigate the effects of price volatility.
For the Adventurous Investor If you’re willing to embrace higher risks, specialized equity asset funds offer opportunities. Sectors range from geographical regions like the BRIC nations to commodities. With the rise of ETFs, investing in these commodities has become more accessible, though it requires personal research and understanding tax implications.
Navigating the World of Financial Advice: Whom Can You Trust?
The Volatile Nature of Stock Markets Regardless of efforts by governments and central banks to stabilize economies, stock market volatility is inevitable.
Seeking Genuine Financial Advice With numerous financial products available, choosing the right fit becomes challenging. An independent financial adviser can offer unbiased suggestions tailored to your needs. Be wary, though! Many institutions, including banks and life assurance companies, might push their products.
While the world of investment has its complexities, understanding the landscape, being aware of your risk tolerance, and seeking genuine financial advice can pave the way for informed decisions. Fj Hanly & Associates have been providing financial advice for over 30 years in areas of pensions, savings and investments.
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