balancing between two cliffs

Your tolerance to investment risk and what it means?

Danielle McLeod, Senior Operations Coordinator
12/04/2024
balancing between two cliffs

What risk tolerance means

Risk tolerance refers to the level of risk that you are comfortable to take with your investments. It is important that we understand your risk tolerance when investing as this determines the type of products, funds and amounts invested that we would recommend to you.

Why is this important?

Investment risk is important to help you achieve your financial goals, whether this is long term or short term, each investment product contains an element of risk. Any investment can be affected by events which impact the financial markets, such as, inflation and interest rates, globalisation, and the technology boom in America currently driven by AI.

When you start to look at investing, it is very important to first understand your financial situation before doing so. Investments rise and fall, and this can be unsettling for anyone, but your appropriate risk level will depend on your circumstances, capacity for loss and attitude to risk.

Firstly, we need to understand there is a risk and reward relationship. The greater risk you take, the greater the potential reward. Returns are not guaranteed, which is why the return will always be linked to a level of risk. Secondly, we need to normalise volatility, this is part of being invested. Markets will continue to move both positively or negatively, and we will always take a long-term view with investing.

There are things you can do which might help you spread risk and prepare for any bumps in the road. You might wish to take a lower, but steadier return with less risk which is more suitable for you and that you feel comfortable with, but you may also want a higher risk.

Whether you decide to take higher risk to potentially achieve better rewards or prefer to be more cautious, the approach you take is a very personal decision and could change over time with your circumstances.

Helping you understanding your investment risk tolerance

As a client of Crowe Financial Planning, our consultants will always discuss investment risk with you and part of this will be asking you to complete a questionnaire. This will help us determine your understanding and attitude towards risk and ensure that any recommendations we make are suitable for you, as it is important that we assess the level of risk you are able to take with your savings to meet your aims and objectives.

We use a third-party psychometric questionnaire to aid us in identifying the level of risk which you feel comfortable taking. The questionnaire will incorporate your previous investment experience, your need to take risk, your attitude to risk, investment time horizon and your capacity for taking risk.

Subsequent discussions with you based on these results will help our consultants align you with the correct level of risk and products to invest in. This is something your consultant will review with you on an annual basis to make sure your investment strategy remains suitable.

What this means for you

We at Crowe want to give you the confidence and comfort of knowing that your investments are being monitored on a regular basis. We provide annual review reports which consider your current risk tolerance, current risk exposure of your investments and current circumstances which we review with you. We review your investment strategy as well as your investment products to make sure that they remain suitable to meet your needs and your financial goals.

If your circumstances change or if on reflection, you wish to change the level of risk you are exposed to, you can contact us at any time, and we will provide advice accordingly.

 

Meet our Financial Planning team
Helping secure your future financial objectives.

Disclaimers

The information set out in our publications is for information purposes only and does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe Consultant will follow only after consideration of all aspect of our internal advice guidance.

Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore investors may not get back the amount originally invested. 

The Financial Conduct Authority does not regulate Trusts, Tax or Estate Planning. 

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