Risk & Reward – The Fundamentals of Investment

The ability to weigh up risk and reward is a crucial skill for successful investors. Even though investors may be presented with exactly the same information, they may come to completely different conclusions about whether or not it’s a good idea to make the investment. The reason for this is that each investment has to be viewed in the light of an individual’s personal situation and goals and hence an investment which is perfect for one person may be a really bad choice for another. Here are some key questions to ask when deciding whether or not an investment is right for you?

What is my investing horizon? – This is really a better question to ask than the traditional “What is my age?”. You may be a young person who, for whatever reason, can only tie up their money for a short period, or an older person working on the assumption that you may still have decades left to live and even if you don’t, you would like to leave a legacy for your heirs.

How easy would it be to monetise this investment? – Some investments can be monetised fairly quickly and easily, many shares for example, although you do have to accept that you may do so at a loss, particularly if exiting the investment early triggers a penalty and/or a tax liability (such as capital gains tax). Some investments, however, such as property, have much slower transaction times.

How much risk is appropriate for me right now? – In addition to looking at the balance of risk and reward for the particular investment, you need to look at where you stand in general. For example, if the investment is fairly high risk but high reward and all your other investments are very low risk and low reward, then you may feel that you would benefit from taking a bit of a gamble, at least with a small portion of your investment funds, to try to improve your overall return. If, however, you already have a number of high-risk/high-reward investments in your portfolio, then you may be better to stand pat.

How diversified is my portfolio? – Generally, you want to achieve enough diversification so that your portfolio always performs well overall, regardless of the specific economic climate, although some investments may do better than others, depending on market conditions. At the same time, over-diversification can make a portfolio overly complex and challenging to manage.

Does this investment have tax-benefits? – For example, can you put it in an ISA or does it qualify for business relief to help with your estate planning? Tax benefits in and of themselves are unlikely to turn an inappropriate investment into an appropriate one (or vice versa), but when you have the choice between two appropriate investments, remember to take tax into account when calculating which one could offer the better returns.

What is my field of knowledge? – You need to be able to understand potential investments to be able to judge if they are right for you, since, ultimately, control of your financial destiny lies with you and you alone. At the same time, however, the best decision-makers generally know when to get advice, choose their advisers carefully and pay close attention to what they say. With this in mind, it can be worth giving strong consideration to getting professional help from a financial adviser, who can look at your specific situation, make suggestions as to what investments could be right for you personally and explain to you what they mean in actual, practical terms, thus empowering you to make the right decisions for your particular circumstances.

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Is It Time To Give The Markets A Break And Change Your Portfolio?

Over recent times, market-watching has been an educational activity for those with a strong stomach. World affairs (Brexit, the U.S. election…) have sent them plunging down only to start working their way back up again. With that in mind, here are 5 alternative investment options for those looking to give their portfolio a new year refresh, listed from the most sensible to those which are really more about having a bit of fun.


Property is generally a stable investment in every sense of the phrase. This is particularly true in countries such as the UK where there is not only a high population density and an acknowledge lack of housing in general, but also a need to replace existing low-grade and/or dated housing with housing which is suitable for modern requirements. There are various ways to invest in the property market, of which buy-to-let is probably the most visible, but alternatives such as investing in property development can give your portfolio the benefit of exposure to the housing market without taxes, landlord involvement or a property to sell should you want a shorter term investment.

Peer-to-Peer Lending

Banks essentially take deposits from savers and lend them to borrowers taking a percentage for themselves along the way. Thanks to technology, peer-to-peer lending allows individuals to cut out the middle-man (or at least change their nature) so that lenders and borrowers can both get better rates. Of course, if you put money in a bank then, in principle it should be absolutely safe (although only deposits of up to £75K per bank benefit from an FSCS guarantee), whereas, as a lender, you accept the risk of default. Having said that, the role of the P2P platform is to screen borrowers and assign them risk categories, so lenders can make informed decisions.


Probably the most famous crowdfunding site of them all, at the moment, is Kickstarter, but this is unlikely to be of any great interest to investors since at this time Kickstarter explicitly forbids funders being given shares with financial value, instead they are given gifts to show appreciation. There are, however, other sites which do allow investors to receive shares. The key point to remember with this type of investment is that it tends to be high-risk/high-reward. These companies often have a serious risk of failure, in which case, there is a strong chance you will lose your money. If they succeed, however, you could be hugely rewarded.

Gold and silver coins

This is a hybrid of investing in collectables and investing in precious metals. Investing in collectables can be both fun and profitable, especially if you’re collecting something which really interests you. Precious metals have an obvious, long-term appeal. If you go for collectable coins in silver and gold then you will have the physical quantity of the precious metal, plus the chance that the coin itself will acquire collectable value or that its collectable value will increase.

Premium Bonds

If interest rates were higher, premium bonds would be a horrendous place to park your money, but at current time, savings accounts and ISAs are offering pitiful returns and current accounts are places to hold your money for easy access rather than to grow it. So even though premium bonds have the same disadvantages they have always had, namely they pay zero interest and your chances of winning anything at all, let alone any significant amount of money, put them into the category of having a flutter rather than serious savings or investment, today’s low-interest-rate environment makes these points much less significant than they used to be. So if you need somewhere to park your cash over the short term they could be a reasonable option and, you never know, somebody has to win.

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