1. What is risk
Not the most inviting of propositions. But when looking at risk in terms of investing, fear needn’t be a factor.
Truly understanding risk as a concept is simply a cornerstone of successful long-term investment management.
Risk describes the uncertainty of the returns on an investment. It is an indicator of the potential for losing money and making money. Although we often do not think of it this way, it can mean returns are unexpectedly high.
Different investments will be more or less risky. Shares are considered more risky than bonds, although this is not true for individual shares and bonds. Investments that are more likely to give higher returns in the long run may have a bumpier ride along the way, whereas investments with a lower return potential are often more likely to remain steady and stable for the duration.
Put simply, investments that have higher risk usually have higher rates of return. So, individuals who are looking to increase the value of their investments significantly, and who are prepared to accept that the value of their investments might fall, are more likely to choose to invest in assets that have high risk.
No single asset class can be relied upon to produce safe, reliable and consistent returns. At Nutmeg, we believe that a diversified investment portfolio — with an appropriate proportion of cash, equities, bonds, property, commodities and alternative asset classes for your goals and risk tolerance — is a better way to maintain and build wealth over the long term.