See our jargon-free guide to investment and risk.
Understanding risk
Our ‘Understanding Risk’ brochure is is designed to help you understand the Skandia risk profiling process, as well as the risks inherent within the funds that may sit within your investment portfolios.
One of the most important considerations with any investment is to balance your attitude to risk with your desire for positive returns. After making sure that they have a comprehensive picture of your personal and financial circumstances, your financial adviser will ask you a series of questions to determine what your attitude to investment risk is. This is known as risk profiling.
Risk profiling measures the balance between risk and return that you are prepared to accept.
All investments involve some risk.
Once your financial adviser knows the extent to which you can tolerate a potential short-term loss while pursuing a long-term gain, they can begin to build your investment portfolio.
Risk profiling is an essential part of the advice process. The more accurate your profile, the greater the chance of achieving the most suitable investment mix for your needs.
All investments involve some risk. The most common measure of risk is the extent to which the value of the assets in an investment moves up and down over a given period, relative to their long-term average value. This is often referred to as the volatilityVolatilityVolatility frequently refers to the Standard Deviation of the change in value of a financial instrument with a specific time horizon. It is used to quantify the risk of the instrument over that time period. Volatility is typically expressed in annualised terms, and it may either be an absolute number (£5) or a fraction of the initial value (5%)..
Volatility is a statistical method that measures how much a series of values move up and down around its average. The higher the volatility number, the less consistent the historical performance of an investment has been.
Investments with higher volatility are considered to be riskier than those with lower volatility. Although their potential for upward swings is greater, so is their equivalent potential for downward movement.