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The Concepts of Risk and Spreading Your Investments

May 03, 2012 | Comments: 0 | Views: 245

Putting your savings or capital in investments in stocks and shares is subjecting these to a certain amount of risk. Investments fall and rise and can go either way, so you may end up having less cash than your initial outlay. So is there any manner you can safeguard your investment or at best minimize the risk? In a few words yes, by spreading your investments over several different companies and marketplaces.

Putting all your funds into one place is a recipe for economic disaster as the risks are numerous. Investing in a single account exposes your money to more risk since the fund management organization could collapse, the stock market index to which it's linked could perform badly and even just a simple lack of rise in the spot it invests plus a poor fund manager are typical potential risks.

The best way to reduce risk is to begin small, then gradually growing your portfolio with time. Don't pile in instantly; begin with safer investments and, when you are more assured, you can look into the riskier investment types. In case you are looking at ISAs, it might be easier to start with a cash Isa before moving on to stocks and shares ISAs. Your first investment ISA should probably be a FTSE tracker fund or perhaps a UK equity earnings fund since these are viewed as less risky.

You should be conscious of your financial targets and investment objectives before looking into funds which carry a higher risk. Depending on your investment outlook, you might choose a different investment strategy; for instance, it doesn't make much sense to invest in a high risk fund if you really don't want to lose any money. In that case, you will be better off choosing a lower risk fund. In short, you need to understand how much risk you are willing to take before choosing your investments.

For example, you might choose a UK company bond fund, in which case your money would be invested in the debt of large blue-chip firms. Alternatively, there are UK development funds which look at smaller British businesses or companies that have the prospect to progress rapidly in the near future. Although more risky, you can also choose a fund that invests in European or United States organizations overseas. Even though they pose higher risks, UK income funds can also be considered; other available choices include funds that invest in high yield ties in goods, properties, or growing markets.

Regardless of your financial situation, you should look at spreading the risk and getting into more diverse investments and property classes for instance equities, ties, cash and goods. A well-balanced money investment portfolio is less prone to risks and therefore more likely to realize bigger profits in the long run.

Gert Hae is an amateur investor who has managed his own investments for 6 years. He currently manages his own stocks and shares ISA and self invested pension.

Source: EzineArticles
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