Why taking too little investment risk could harm your goals

When you imagine the worries that might come with taking investment risk, it’s probably “taking too much” that comes to mind. After all, you’ve likely heard stories of people that have invested in high-risk opportunities and lost some or all their money.

However, when you’re investing for the long term, taking too little risk can also be damaging.

As inflation remains high, considering how you’ll get the most out of your money is more important than ever.

While interest rates are also rising, they still remain far below inflation, which was 10.1% in the 12 months to July 2022. As a result, money held in a cash account is likely to be falling in value in real terms. So, you may be wondering if investing could provide you with a way to maintain or grow the value of your assets.

One important thing to consider is: how much investment risk should you take?

Investment market update: January 2022

While many countries have now eased Covid-19 restrictions, the knock-on effects of lockdown continue to affect economies, businesses, and households.

According to the Organisation for Economic Co-operation and Development (OECD), inflation in the 38 richest countries has reached 5.8% – a 25-year high. The findings also highlight the driving forces behind inflation rates. If food and energy are excluded, year-on-year inflation is a more modest 3.8%.

Global demand for gas and oil, along with rising carbon prices, means that energy bills for businesses and families are increasing. In the UK, rapidly rising prices have led to more than 20 energy firms collapsing, and other countries are facing similar challenges. According to a report from Bloomberg, households in Europe could see average energy prices increase by up to 54% when compared to bills two years ago.

The United Nations (UN) also reported that world food prices have surged by 28% and affected all major food groups.

Guide: 5 important lessons that Napoleon can teach you about growing your wealth

In 1793, a vast army of the French First Republic locked horns with a combined force of Royalists and their foreign allies at the port city of Toulon. It was in this battle that a young artillery officer caught the attention of his superiors, demonstrating not only a high level of organisational skill, but also tactical brilliance and the charisma needed to inspire his men.

This officer was, of course, Napoleon Bonaparte, and the Siege of Toulon would be the first major stepping stone in his long and glorious career.

When you’re looking for tips for growing your wealth, Napoleon isn’t the first person you might think of. Yet, his innovative and dynamic style of leadership can teach you many valuable lessons.

Read our latest guide to learn more about Napoleon and why he can teach you the importance of:

  • Having reserves to protect against unexpected shocks
  • Keeping an eye on inflation
  • Understanding your attitude to risk
  • Diversifying your assets
  • Making an informed decision.

5 behavioural biases that lead to investment mistakes

Investment decisions should be based on logic and fact. But it’s easy for emotions and biases to affect your decisions, and this can lead to investment mistakes.

Behavioural bias can be useful in some circumstances. It’s a way of making mental shortcuts when you need to make complex decisions. When you consider how many decisions you need to make day-to-day, being able to make quick decisions is important. However, it’s just as important to recognise when biases can be harmful, and investing is one example.

Biases may come from your past experiences, unconscious beliefs, or the way you use information. Being aware of how biases may influence you can help you reduce the risk of making a mistake. Here are five common cognitive biases that could have an impact on your investments.

1. Confirmation bias

When you’re deciding which stocks, shares, or funds to invest in, you’ll seek out information to help you make a decision.

After 2 “once in a lifetime” economic events in 12 years, how can you protect your assets?

In the space of just 12 years, the global economy experienced two events that are considered “once in a lifetime” occurrences. As well as having an impact on economies, the 2008 financial crisis and 2020 Covid-19 pandemic are likely to have affected your finances too.

Many people will remember the impact of the 2008 financial crisis that triggered a global recession and the uncertainty it caused. From job insecurity to large falls in the markets, it had a far-reaching impact. Then, just 12 years later, the Covid-19 pandemic created uncertainty again.

While government support in the UK through the furlough scheme has helped to protect jobs and limit redundancies, it’s come at a cost. The latest fiscal report from the Office for Budget Responsibility show that over £1 trillion was added to the public debt, which is now above 100% of GDP for the first time since 1960.

The millennial generation and wealth transfer paves the way for ESG investing boom

While ESG (environmental, social, and governance) investing is growing across all investor segments, it’s the millennial generation that’s leading the trend. A huge wealth transfer in the upcoming decades could change how money is invested.

ESG investing involves considering non-financial factors when making investment decisions across three core areas: environmental, social, and governance. This may be done to reflect investor values or to identify risk and growth opportunities. While ESG issues are often associated with climate change and the environment, they can also include things like how a company treats its employees or the size of executive bonuses.

ESG investing is growing in the UK. Figures from the Investment Association show UK investors added almost £1 billion a month on average to responsible investment funds in 2020. Yet this remains a relatively small portion of the £8.5 trillion assets under management. However, there could be a shift that pushes ESG investing into the mainstream in the coming decades.

Begin typing your search term above and press enter to search. Press ESC to cancel.