Risk is the possibility of losing some or all of your original investment. Often higher-risk investments offer the chance of greater returns but there’s also more chance of losing money. You’ll come across the terms ‘risk’ and ‘risk profile’ a lot as an investor.
Risk means different things to different people. How you feel about it depends on your individual circumstances and even your personality. Your investment goals and timescales will also influence how much risk you’re willing to take. What you come out with is your ‘risk profile’
A good way to check how comfortable you are with risk is to think about your reaction to the following statements:
|chance this investment will make money or at least repay your capital
||chance this investment will lose money
These two statements describe the same investment risk but you might react differently to them. Your attitude to risk can also depend on the amount of money you can afford to invest. You should never invest more than you can afford to lose. However, this illustration does not touch on the question of how much you might lose or gain e.g. an 80% chance of gaining £1 and a 20% chance of losing £100. Knowing that might well, and should, affect your view of risk.
All investments carry some risk
As a general rule, the more risk you’re prepared to take, the greater returns or losses you could stand to make. Risk varies between the different types of investments. For example, funds that hold bonds tend to be less risky than those that hold shares, but there are always exceptions.
Can you manage risk?
You can’t get rid of risk completely, but you can manage it by investing for the long-term in a range of different things which is called diversification. You can also look at paying money into your investments regularly, rather than all in one go. This can help smooth out the highs and lows and cut the risk of making big losses.
Not sure if investing is for you?
Investing isn’t for everyone. If you’re not sure, you may want to seek independent advice. You could find that cash savings might suit you better. You can find out about savings accounts on our website at barclays.co.uk/savings.
Types of investments