Risk and return
Before you invest you need to consider your attitude to risk.
Generally speaking, the higher the potential returns on any investment, the higher the risk.
We can help you choose low-risk investments that can still offer reasonable returns or if you are happy to take on more risk, we will help you to consider investments that have a higher potential for growth and a matching risk profile.
You need to be aware that all investments carry risk and you may receive back only part or none of your original investment.
What is an investment risk?
When people consider investment risk they usually think about not receiving their money back because of falls in value but there are other types of investment risk you need to consider when making an investment.
- Counterparty risk – the risk of losing money because the financial institution issuing the investment fails to pay or fails to deliver on their obligations – this is referred to as a default.
- Currency risk – if your investment is held in a foreign currency, when converting it back to your home currency there is a chance that changes in the exchange rate may affect the value you will receive in your “home” currency.
- Inflation risk – the chance that even if the value of your investment has increased it may be worth less because of changes in the purchasing power caused by inflation.
- Liquidity risk – if you need access to your money before the investment is due to payout, you may not be able to access it immediately or without penalty.
- Market risk – the potential of an investment decreasing in value due to a change in global markets. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices.
Preparing for investment risk
Our International Investment Advisers have the knowledge and expertise to talk you through investment risk and how you can help manage it, in context of your personal circumstances.
Understanding your attitude to risk
Everyone’s attitude to risk is different. To help us understand the approach to risk you’d like to take, our experts will discuss your needs and create a personalised approach for you.
Consider your investments as a whole
You should think about how your investments work together as a whole portfolio. For example, you might need to have some low-risk investments, but are also willing to take more risk with the potential for growth with another part of your wealth.
You also might need access to some of your funds quickly – so you can make the most of opportunities when they arise – but allow another part of your investments to be tied up for a number of years.
Making sure you have a mix of different kinds of investments in a variety of markets – diversifying your portfolio – can help reduce your overall level of risk. As not all investments will perform well at the same time ensuring you have a mix of different types of investments can help reduce your overall level of risk.
Other factors to take into account:
You need to consider your stage in life and what ambitions you have for your investment. For example, you might be planning for retirement and need to begin reducing the volatility of your portfolio.
If you do not need access to your initial investment for a long period of time, you may be more willing to take higher risks for the potential of a higher reward as there is more chance any market fluctuations will be balanced out.
Return on your investment
How do you want your money to work for you – do you need to make a regular payment, such as school fees? You may be able to structure part of your investment portfolio to produce a regular income to meet these payments.
How long do you want to invest for?
To get the best returns you need to invest for the long term – usually at least five years. If there is a chance that you might need access to your capital in the short term then a savings account might be better suited to you.
Remember that all investments carry risk. Investments can fall in value and you could get back less than you invested.
Investments in currencies other than your own may rise or fall because of changes in exchange rates.
Looking for investment advice?
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Our investment service is available to you if you have £100,000 (or currency equivalent) to deposit and maintain across your International Banking accounts and investments.