How to take less risk when investing

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.

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.

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 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."