How to take less risk when investing

Investing your money can seem like a scary idea. It doesn’t come with guarantees. There’s a risk you might receive back less than you invest, and how your investment performs is not something you can control.

It’s very normal to feel this way at first about investing. That’s why, at Skipton, we will only ever recommend an investment approach that you’d feel comfortable considering. We’ll take the time to understand what you want to achieve with your money, help you work out your feelings to taking risk – and present options that match your needs.

A balanced approach can reduce the risk you take

We’ve all heard the saying about not having all your eggs in one basket. It’s a really useful philosophy to follow when it comes to investing. By taking a diversified approach with your investments (putting your eggs into different baskets) you can reduce the overall risk you’re taking – but still have the opportunity to achieve good returns.

This could mean having a portfolio of assets, with your money exposed to the likes of shares, corporate bonds, cash and even property. Each type of asset performs differently at different times. And as market conditions change, this approach could help you achieve a smoother level of returns.

Don’t worry, you don’t need to be a financial expert to build a portfolio. As we’ll come onto explain, there are investment funds available that do this job for you.

How a balanced approach works

A balanced portfolio would be split into two types of assets.

  • Growth assets - these are assets designed to provide you with growth on your investment.
  • Diversifying assets - these are usually less risky and could provide some protection if the growth assets fall in value.
On phone screen the stock market is showing a negative impact

Growth assets

These are the riskier assets, which are more likely to go down in value at times. But they also have the potential to deliver rewarding long term returns that could boost your future financial plans.

Growth assets include:

  • Shares – UK and global

    By buying a share in a company, you could benefit from any increase in its share price. You might also receive a share of its profits through dividend payments. Neither are guaranteed though. Stock markets can be volatile, and you might lose money from shares.

  • High risk corporate bonds

    This is where you loan your money to a company for a set period, which they use for different reasons. You receive interest back at a set rate, plus your original capital at the end of the term. The returns can be high with some companies, but you’re taking the risk in their ability to pay you back. This may not always be the case.

  • Property

    By this we usually mean commercial property, like shopping centres or office blocks. You could benefit from a rise in the value of the property, and a regular income from any rent the properties generate. Neither are guaranteed though.

  • Precious metals

    This might mean gold, where you’d benefit if its value were to rise. But this is also not guaranteed and you could lose money.

Diversifying assets

These types of assets might not make you a lot of money on their own, but they could act as a cushion in tougher moments for your portfolio.

Diversifying assets include:

  • Cash

    By this we usually mean easy access accounts. Returns are likely to be low, but they’re lower risk.

  • Government bonds

    These are similar to corporate bonds, only you’re loaning your money to a government for its spending needs. As governments are usually considered more secure than a company, you’re more likely to be paid back. Although the safer nature of government bonds usually means the interest you receive is lower.

A balanced fund at work

A Skipton financial adviser could help you to invest into funds that suit your circumstances. They will feature a blend of growth and diversifying assets, which mirrors your appetite to risk. You can invest a lump sum from £20,000 or £500 per month.

With the help of an adviser, you can build an investment portfolio that suits your personal feelings to risk and reward. For example, if you have a higher risk appetite, you might have a portfolio with a higher amount of growth assets. If you’ve a lower risk appetite, you could have a portfolio with more diversifying assets than growth assets, to give you more balance.

Pie Chart showing the difference in growth and diversifying when investing a low, medium or high risk fund.

Image shows three different pie charts, displaying examples of investment options.

  • Graph one: small amount of growth assets, offset with a large amount of diversifying assets, making a low risk fund.
  • Graph two: a fairly large amount of growth assets, with some diversifying assets, making a medium risk fund.
  • Graph three: Mostly growth assets, with a very small amount of diversifying assets, making a high risk fund.
Mark Butterworth

Funds with a larger amount of growth assets are more likely to experience sharper ups and downs. It offers you the potential to achieve higher returns over the long-term, but there could be some sharper falls at times. That’s the risk and reward trade-off.

Mark Butterworth, Head of Financial Advice Planning and Research.

Mark concludes "We’ll help you explore and understand your personal views on risk and reward, so we can offer recommendations that match it. By helping you to build a balanced investment approach, you can invest in a way that you would be comfortable with – to give you a better chance of achieving your long-term goals."

Important information

By investing with our advice, our aim is to grow your money by a greater extent than is available through cash savings accounts to help you achieve your goals. Although funds are not like bank and building society savings accounts. It does mean placing your capital at risk, as its value can fall as well as rise and you may get back less than you originally invest. Past performance is not a guide to future returns.

Get in touch

For more information on our service and to find out whether you could benefit from financial advice, call our team today.