How to manage risk when investing

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.


Successful investors all have one thing in common, and that’s the fact they all started out by taking some risk.

When investing, you have to keep in mind risk opens up the opportunity for reward. What you can control is your attitude and temperament around risk. Investors could choose to view risk as a positive, as it allows for potentially greater growth in your money than a non-risk investment.

Managing risk when investing starts with you. Consider your circumstances, be realistic with how much you can afford to invest and how any fall in value would impact your lifestyle. It is your disposable income you should invest, meaning you’d only realise a loss if you withdrew your money during a fall. By investing disposable income, you can afford to stay invested for the long term which would give your money time to recover in the event of a fall in value.

When setting up an investment with us, our online assessment will guide you through questions on affordability. This will help to give you clarity on your financial situation. By weighing up your income and expenditure, you can ensure that you are taking risk at an affordable and sensible level. Remember, risk is what creates opportunity.

You should also make sure you have at least three months worth of emergency funds as a back up in accounts you can easily access. By keeping some money aside, you won’t have to take on expensive debt in unexpected emergencies. For example, if your roof needed fixing, some people may look towards a short term loan or credit card to fix it. But by always ensuring you have three months worth of emergency funds, you are in a stronger position to deal with what life may throw your way. Our Stocks & Shares ISA is a good place to start, as your investment is accessible within a few working days.

One of the key ways to manage risk is to invest in Portfolio that is matched to your attitude and capacity for risk. When taking our Online Assessment, our risk assessment questionnaire will help you to determine which of our portfolios is most suitable for you.

These portfolios are built around your capacity for risk, helping you to manage your exposure to losses. For example, a defensive investor may accept lower long-term returns in exchange for smaller and less frequent changes in Portfolio value. In contrast, an aggressive investor values high returns relatively more and can tolerate both large and frequent fluctuations through time in portfolio value in exchange for a higher return over the long-term.

All of our Portfolios benefit from Global Diversification. Our investment team make the decisions, working with fund partners such as UBS, Allianz and Goldman Sachs Asset Management. Through these partners we gain access to 9,000 experts in 200 locations. Your eggs aren’t all in one basket, thus your risk is managed to some extent.

Beyond this, it could be wise to invest with a long-term perspective. The longer you are invested, the more likely you’ll ride out fluctuations in the markets.

Take our online assessment today, you’ll learn which portfolio is most appropriate for you. This will help you to manage risk in a way that you are comfortable with.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance