En Voyage - Issue #8

Business
LET’S TALK ABOUT
RISK, MAYBE
BY BEX GOATER
Investing carries risk. I think following the most recent
market crash in 2008 (and all of the gory headlines that
came with), most people know this now. And those
that don’t should have this pointed out to them about
20 times prior by anyone advising them in relation
to investments to ensure they’ve got the point.
But what does this mean? Well, essentially, if you’re
investing your money, you’re hoping it will provide
positive returns and either increase in value, and/
or perhaps provide you with an income. However,
there is also a risk that the investment can provide
negative returns, particularly in the short term, as
a lot of investments will be subject to fluctuations
as the markets go about their daily business.
IF CIRCUMSTANCES
ALLOW, OFTEN,
THE RATIONAL
THING TO DO IS
TO WAIT IT OUT
Because of this
fact, we generally
recommend therefore
that investments should
be made with a long
timescale in mind
(minimum five years),
in order that if the
investment does go
down one day, you don’t have to get too worried about it.
Instead, you are in a position to just wait for it (hopefully)
to go back up again and don’t have to cut your losses.
However, this is easier said than done; as us
homo sapiens are an emotional species and
don’t always behave rationally.
Depending upon the investment, following a loss,
if circumstances allow, often, the rational thing to do
is to wait it out. After all, for a lump sum investment
that is not providing any income, it is only really when
the investments are encashed again that you feel the
gain or loss in your pocket. Prior to this, it is all just
a value on a screen that can change at any time.
However, at times there can be an instinct to 'cut
the losses' and sell the investment and move it back
into cash. This might be the wrong thing to do, as
not only have you crystallised your loss, but with
interest rates in banks still at pretty low levels, you
are unlikely to make that loss back again simply sat
in cash. Conversely, by leaving the investment where
it is, you may see it go down further initially, but
we would then generally hope to see recovery.
This is best demonstrated by example. The below graph*
shows the performance of the FTSE 100 stock market
from just before the 2008 Financial Crisis, through this,
and then until the beginning of 2011. As you can see,
there was quite a frightening fall in 2008 and 2009, but
the market had significantly recovered within a year.
GBP
6,000
5,000
4,000
02 Jan 2008 01 Jan 2009 01 Jan 2010
© 2017 FactSet
Those that panicked and did cut their losses therefore,
will have missed out on the recovery period after this.
So, what should you do? Well, firstly, it is very
important that you understand the risks applicable
to your investments, and your Financial Advisor and/
or Investment Manager should make these very
clear to you prior to making the investment. Because
of this, you should be aware therefore that your
investment can go up and down so you won’t be too
scared if you do see the value dropping at times.
Your adviser(s) will also be there to monitor and review
your investments to ensure they remain suitable, and
will be able to discuss anything with you. However, you
should ensure that you contact your Financial Adviser if
any of your circumstances change, as this could impact
upon the ongoing suitability of your investments.
Remember, everyone’s circumstances are different, so
if you’re not sure, do make sure you contact an adviser,
as sometimes, it might be suitable to cut your losses!
Contact Network Financial Planning on
01481 701 400 or at advice@network.gg today
for a free initial review with one of our qualified
advisers to discuss your personal circumstances.
*Taken from www.hl.co.uk/shares/stock-market-summary/ftse-100/performance
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