Investing jargon made simple: Capital at risk
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.
You’ve probably seen the term ‘Capital at risk’ around our website. This statement simply means that as well as rises in the value of your investment, there is also the risk of the value of your investment falling. Markets go up and down, so you need to make sure you can handle the prospect of falls in value. Remember, falls in values only become a loss if you withdraw. If you stay invested over the long term, you have the potential to ride out fluctuations in the market.
Think about the performance of the FTSE 100 this year. If you had invested at the start of the year, the FTSE 100 was at 7,724 on January 2nd. Your capital would be at risk, and you’d have seen the FTSE 100 fall to 6,888 by March 26. But your risk would have only been a loss if you’d have withdrawn at that point. If you’d have stayed invested, you’d have seen the FTSE 100 climb to 7,778 by May 18.
This shows why it is worth thinking about ‘risk’ more broadly. Risk is what creates opportunity for growth. When investing, you take a calculated risk. Our online assessment on tpinvestor.com places you into a Portfolio that matches your attitude to risk, on a scale ranging from defensive to aggressive.
You should also consider that your ‘Capital is at risk’ even when sat in a Cash ISA or bank account, as inflation is currently above typical interest rates. Left in these accounts, the spending power of your money is reduced. Yes, your balance wouldn’t fall on paper, but the spending power of your money would be reduced if you were getting say only 1% interest if the inflation rate was 2%. Basically, prices in the street would be growing quicker than your money. With investing, your money has the potential to grow based on the performance of the funds in your portfolio.
To help reduce your risk, our expert investment team utilise Global Diversification. We have access to more than 9,000 professionals in 200 locations around the world, meaning your eggs are never all in one basket. Yes, capital is at risk, but the risk is spread out and in the long term there is the potential for growth by taking some risk.
Our online assessment will assess your attitude to risk to place you in the Fully-Managed Investment Portfolio that is most appropriate to you. Invest today at tpinvestor.com.