Ask the Expert

Investment Risk

I have an investment portfolio and I have always felt happy with the level of risk. Recently, my portfolio has not performed as well as I would have hoped. Do you think I should reduce my risk level and use more cash deposits?

Carl responds:

Your attitude to risk will vary throughout your life and it is important that you review your risk level with a financial adviser on a regular basis. When markets start to fluctuate, it can be very tempting to make financial decisions in reaction to changes to your portfolio. However, moving your money around between investment assets should be approached with caution and I would recommend seeking financial advice before making any decisions. A financial adviser will be able to assess your investment risk profile and make any changes based on your long-term goals.

Different types of investments will carry different levels of risk. You will always have the option to change the content of your portfolio so that it matches the level of risk you are comfortable taking. Your investment assets can have different risk ratings while your overall portfolio matches your investment risk profile. You do have the option to include cash investments in your portfolio, such as a Cash ISA. However, it is worth mentioning that cash investments may struggle to keep pace with inflation due to the current low-interest rates.

There are a few different tactics that you could try to negate downward trends in a market. The first tactic is to diversify your portfolio. You may wish to invest in a global mixture of shares, bonds, property, cash, and commodities. This means that if one area dips, other areas could even out the rest of your portfolio, meaning you are less likely to lose all of your money.

Another option is to drip-feed your investment account. This is a tactic to try to even out your investment performance by adding little and often to your portfolio. If you set up regular payments, you can buy more investments when markets are low, and fewer investments when markets are high. As a result, you will reduce the extreme highs and lows.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.