What’s your attitude to risk?

Some investments are considered riskier than others, and generally, spreading your investments between different companies, types of assets and geographic areas can help to smooth returns over time. This way, you avoid putting all your eggs in one basket, which is one of the golden rules to successful investing.

There will always be some investments that perform better during difficult economic periods than others. For example, gold is considered a traditional safe haven asset during turbulent periods, and it has soared in value over recent weeks following the outbreak of a war in Europe and the prospect of rising inflation. Read more in our article Five facts about investing in gold. However, gold itself is very volatile, and there are no guarantees it’ll continue to perform strongly.

One way to spread risk is to put your money into a fund, for example, rather than investing in individual shares or a single asset. This way, you can hold dozens of companies and spread risk. Your money is pooled together with other investors’ cash and spread across a range of companies and, sometimes, other assets. So if one company or asset performs poorly, the hope is that gains made by others will reduce overall losses.

In particular, a multi-asset fund may be an option worth considering if you’re choosing a single investment, as these hold companies around the world in a single fund. There are plenty to choose from, with options for cautious and more adventurous investors. If you’re nervous about investing, look for a multi-asset fund that also holds cash and gold to reduce risk.

Drip-feeding money into funds by investing, say, £50 or £100 a month instead of a lump sum, can also help to reduce risk. You benefit from what’s known as ‘pound-cost averaging’ as you buy more shares when prices are low, and fewer when they are higher, which can help to smooth out stock market volatility.

If you’re worried about stock market volatility affecting your investments, you may find our article Four ways to weather stock market storms useful.

Author: wpadmin

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