If I was a financial adviser I would take more risk!
It’s funny, I have learned over the years that when it comes to fear, of anything, it tends to come from the unknown.
We naturally tend to hold back from most decisions until we get a good grasp of them. If we don’t fully understand something we tend to fear it. We step back and digest. Most of us rarely just take a punt, especially when our hard earned cash is involved.
So let’s think about this for a second in terms of your financial goals and whether you should consider risk.
Often we stick with what we know, hence there is €116 billion on deposit in the country today with the various banks and credits union. Up from €86 billion in 2008 pre-recession. We naturally back away from things we don’t understand and in a time of market uncertainly there tends to be a flight to safety and the high street bank or credit union is familiar, local and crucially we understand how they work. They give interest, very little, charge fees and hold your money for you. Safe.
Compare that with a “risky” fund. In 2008 €100 would have lost about €40 euro of its value by the end of 2009. That same €100 to day would be worth €175 if it stayed in that risky fund over a 9 year period including one of the worst recessions in living memory. The cash in the credit union would be worth less than €110 today.
Now here is the key point.
Understanding markets and risk and movements up and down doesn’t make you a risky investor, but it goes a long way to helping you assess if you are a risky investor.
If I was to return my mind to my pre-financial adviser days I tended to blindly go down the middle. Most of us will. When offered an option of high, low or middle, 80% of us will choose middle. But now that I understand the various investments, markets, bonds, shares etc I have changed my view.
My attitude of how much risk I am prepared to take changes dramatically based on what the money I am considering investing is for.
If I am putting €200 into my pension which I won’t access for 20 years, top of the risk scale for me please! I now don’t care if that €200 euro loses money this month or next. I now know that the best chance I have of getting the highest value in 20 years times for my money is to take lots of calculated risk. It’s the value in 20 years that matters the most, not in 6 months. It’s now a calculated risk, not a crazy risk.
Conversely if I am putting money aside for next year or for any unplanned emergencies, I won’t put it in a risky fund, I will put it in a the local credit union. It’s safe and I need it, maybe tomorrow, so I am not prepared to see its value fall, so bottom of the scale for me on this one.
I think we have to think about what the money we are saving is for. When are we likely to need or want it and give yourself the best chance of having the highest value possible at that point. It is almost impossible to fully understand every working part of a risky fund, but that itself is not a reason to shy away from it. Most of us don’t understand how car engines work fully, but we drive the car that suits us best for the journey ahead. Investing is similar.
At New Beginning Financial Services our mantra is to try to educate our clients on risk as much as possible and try to match our clients to suitable investment types. As such we will always ensure our clients fully understand that taking risk involves ups and down in the short term to attempt to deliver in the long term.
As always, if you would like us to review your existing or future investment set up to ensure its doing what you want it to do please just get in touch and I will be happy to chat through it with you.
You’ll get me at email@example.com or just call Kathy on 01 531 0571 and we will take it from there.