Investment-And-Risk

Find out more about how risk profiling fits with investing the Skandia way.

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.

Download the brochure

There’s no avoiding it: investing and risk go hand-in-hand. The truth is that understanding riskRiskIn its simplest sense, risk is the variability of returns. Investments with greater inherent risk must provide higher expected yields if investors are to be attracted to them. Risk can take many forms, but a major one is valuation risk – paying too much for an asset. See also currency risk, exchange rate risk, market risk, political risk, volatility. is less risky than not investing at all. This section explains how you can work with your financial adviser to manage risk and maximise your rewards.

Risk is a fact of life for any investor. Thanks to inflation, there’s even risk in doing nothing. To earn rewards you have to assume some level of risk. If you minimise risk you may also minimise your chance of achieving your goals.

Understanding the level of risk you are willing to take is crucial. It is likely to be one of the first things a financial adviser will ask you about – a process known as ‘risk profiling’. This is essential as the more accurate your risk profile, the greater the chance of recommending the most suitable investments for your needs.

Of course, your personal circumstances form an important part of the risk profiling process. That’s why your financial adviser will want to determine your reasons for investing. Are you investing for retirement or looking to save for a luxury holiday? Your age is also important: if you are a young investor saving for a pension you may be more likely to take higher levels of risk due to the greater length of time to recover short-term losses.

All types of investment carry some risk of making a loss, the main thing is to be comfortable that your investments represent, as closely as possible, a level of risk acceptable to you, and continues to do so.

Until recently, some of the measures of risk for various investments have been somewhat broad-brushed. Many investors have been categorised on three levels: ‘cautious’, ‘balanced’ or ‘aggressive’. However there are now many sophisticated risk profile questionnaires and online tools available to financial advisers to help measure your appetite for risk more precisely, with investment strategies designed to match the outcome.

The more accurate your risk profile, the greater the chance of recommending the most suitable investments for your needs

Remember that over time, as your personal circumstances and the economic outlook change, so too might your attitude to risk. So it’s essential that you regularly review your investments with your financial adviser to make sure they continue to reflect your needs.

This information sets out the basics of risk and return when investing. It is not designed to be investment advice and should not be interpreted as such. Other factors will need to be taken into account before making an investment decision – your financial adviser can help you with this.

Investment and risk

Risk profiling