Investing is too risky

Of course, there are risks involved with investing. That’s why it always comes with this rather abrupt warning: ‘you may not get back what you invest’. But too risky?

All investments can be categorised on a scale of risk. Whatever your appetite for risk, there’s an investment out there to match it – from the super cautious to the highly adventurous and everything in between. The key is to understand the risks involved and how can they change over time. That way you can make an educated decision about how much risk is right for you.

Why take any risk at all? Well, in a nutshell, by taking a calculated amount of investment risk, you can give your money greater potential to grow than cash savings.

You have to lock your money away

This is another myth that has its roots in a truth (you might be noticing a theme here). You’ve probably read that an ‘investment should be seen as a medium-to-long-term commitment’ or ‘you should aim to hold it for at least 5 years. This is very sound advice because of the bumpy nature of the stock markets. The longer you hold an investment, the more chance you have of smoothing out the bumps and making positive returns.

The myth is that you have to physically lock your money away. With most investments your money is not locked anywhere. There’s no fixed period you have to invest for and there are no penalties for selling your investments. You can absolutely access your money at any time. That said, please don’t get the impression you should treat an investment like a savings account.

That’s why one of the golden rules of investing is to make sure you have between 3 and 6 months’ worth of expenses saved in an emergency fund before you start. That way, if your car breaks down while the markets have a wobble, you can dip into your savings to get it repaired and leave your investments untouched, so they have plenty of time to recover.

The stock market is a game, and you need to pick “winners” to see results

When choosing investments, instead of trying to predict which individual stocks or bonds will be winners, you can opt for a broad-market mutual fund or exchange-traded fund (ETF) and invest in thousands of them all at once. Evidence shows that most of the stock market return comes from a small number of shares.

However, picking those shares in advance is really hard. That is why buying a wide spread of shares via a collective investment fund has proven to be a successful strategy. Following a diversified approach also helps balance your risk, because economic conditions that cause one stock to perform poorly may cause another stock to perform well.

You need to get in at the right time because the stock market is volatile

Nobody knows for sure what the market will do. That’s why investors often fare better when they don’t try to time the markets. The best and worst trading days often occur close together. So, if you try to avoid falling share prices, you just might miss out on some of the strongest trading days.

The most important thing to do is to look at the big picture. Are you still comfortable with your mix of investments? If so, it’s best to stay the course and keep a long-term perspective.

You need to keep up with financial news

Your investment selection and portfolio strategy should be made based on your life and your investment goals, not on what’s happening in the markets day to day.

Familiarising yourself with some investing basics can help you put market events in perspective and may make you feel more comfortable as an investor. Keep in mind that a lot of what’s in the news is just noise and ignoring it doesn’t mean your returns will suffer.

Instead of trying to adapt to what’s happening in the market at any given time, ask yourself, “What mix of investments am I comfortable having, given the time I have to reach my goal?” If you’re not sure, speak to one of our financial advisers to learn more about asset allocation and diversification.

You need a lot of time to research shares and make frequent trades

Investing isn’t supposed to be flashy or exciting like a casino. The truth is, investing the right way is actually a little bit boring. Once you’ve put your investing strategy in place, there shouldn’t be a lot of day-to-day activity. You just need to check in periodically and make any adjustments needed to keep your plan on track.

Time spent researching stocks, making frequent trades, and trying to time the market rarely has the return on investment some might expect. In fact, the odds are against you when it comes to market-timing. But while timing the market doesn’t necessarily produce returns, time in the market typically does. Instead of asking when you should buy and sell, ask yourself if you’re invested appropriately for your financial goals and if you’re saving enough on a regular basis.

If you would like to discuss investment planning, or any other aspect of investment advice and financial planning, our independent advisers can guide you through the best options for you.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority do not regulate tax planning, estate planning, or wills. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.