High Risk and Low Risk Investments - Managing Risk

When looking at the different types of investments to put your money in it's important to understand the risks associated with each. Investment risk generally relates to the possibility of losing your money, either in the short term or the long term.

As an example the kind of factors to take into account regarding risk are:

* The risk of falling short term values.
* The risk of falling long term values.
* The risk the provider going out of business.
* The risk of making less than other asset types.
* The risk of choosing the wrong investment account, plan or fund.

These provide an idea of just some of the considerations to take into account before making an investment, although the above is by no means an exhaustive list.

In managing risk successfully and choosing the right investments for you the most important element of investing to get right is to realise that the investments have to be personal to you.

The way to do that is to manage the two primary elements of risk. They are:

* The risk of making investments that are inappropriate for your needs.
* The risk of making investments that are inappropriate for your attitude towards risk.

Taking steps to avoid the first will ensure that you have a well structured portfolio. That is, having allocated some money towards a cash reserve, short term money and long term investments. This will mean you have some cash to fall back on in times of need, some money saved for short term expenditures and some surplus assets invested for the future. Having done this you can be safe in the knowledge that your ongoing financial needs are well catered for.

Taking steps to manage the second will enable you to put together a well balanced long term portfolio that is in keeping with your own personal attitudes. Having assessed what type of investor you are and whether you would prefer mainly lower risk or mainly higher risk assets you can then start to choose what individual investments would be suitable. At this point the list above that relates to the risks associated with individual investments comes into play.

A table of high risk and low risk investments can help you to clarify in your own mind where certain investments sit on a scale of risk.

Ultimately most people will be suited to a well balanced mix of low, medium, and high risk investments. However the extent to which you invest in these levels of risk will come down to personal taste, appetite for risk, and your own financial circumstances i.e. whether you can afford the risks.

Jaskarn Pawar, Director, Investor Profile Ltd

If you are a UK investor with an ISA, Personal Pension or Unit Trust investments then Investor Profile's free online investment monitoring service could help make your life easier.

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