How adventurous or cautious you are with your investments will often depend on a number of factors, collectively referred to as 'your attitude to risk'. Of course, your attitude will be made up of a number of considerations and include such factors as:
- how long a perspective you can take. (In general, the longer before you need to realise your investments, the greater the risk you can afford to take and still have time to even out the market's ups and downs and recover from any downturn.);
- how much 'risk' capital you have (you'd react differently to losing 100% of your capital than to losing 10%, for instance);
- how you would feel about seeing your investments go down (and how this changes depending upon how much they go down);
- what you are investing for (if it's a certain purpose, such as to build a deposit for a house you would likely take a more cautious approach than if it were, say, because you'd like to have the opportunity to take a year off and go travelling);
- how much time you can devote to managing your investments (the more 'active' and 'adventurous' an investor you are, the more regularly you'd be monitoring your portfolio);
- your knowledge and experience (generally, the more you know about, and have experience of, investing, the more you can apply that knowledge to making investment decisions).
The 'balance' between all these different aspects will lead you to an investment approach, be it cautious, adventurous, or somewhere in-between … the exact mix will be personal to you at that point in time and will likely change as your circumstances change. For example, the closer you get to needing to rely on your investments for income, the more likely you are likely to take a cautious approach.
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Use our risk quiz to help you identify the investment approach that might suit your best. Then refer to our Risk Ladder to see which investments might fit best with your approach.
Remember there is no perfect answer; it's what feels right for you that matters, balancing the risks of particular approaches to the potential returns they can bring. Bear in mind, too, that the more risk you take with your money, the more the potential to lose money: the value of investments can go down as well as up, as can the income you get from them, and you may get back less than you originally invested.
Your result:
Mostly As - You are a very low-risk investor; cash or near-cash is safe and you'd sleep soundly knowing that.
What this might mean in practice
If you're trying to build-up a 'rainy day' fund or are saving for something specific like a house or that special holiday then this attitude will stand you in good stead.
Equally, if you are near to retirement; don't have much money to play with, or can't stand the thought of your money being worth less than it is now, this approach is right for you.
However, do bear in mind that if you have more than 10 years to retirement - and have put aside sufficient cash (or have safer investments you can call on at short-notice should the need arise) as a good rainy-day fund - then your very cautious approach may not give you the returns to need meet your goals. Inflation could be an issue, reducing the buying-power of your money overtime. If this is a concern, you might consider taking some calculated risks for a portion of your money.
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Your result:
Mostly Bs - You are a low-risk investor; happy to accept a small degree of risk for some of your money in return for reasonably better returns.
What this might mean in practice
Work out how much of your money you can afford to accept a low level of risk with to get a higher return than you would by simply leaving your money in a savings or term-deposit account. Bond and/or Gilt funds and money market funds could bring you those slightly better returns without a significant increase in risk. This strategy is ideal if you are in or approaching retirement, or have a specific aim for your money that is some little way off.
However, whilst you're unlikely to lose money, you're also unlikely to make much too, so if you've time on your side you might find a slightly more aggressive approach, such as using UK large cap funds or ETFs, a global large-cap fund, or some Structured Products with inbuilt 'safety nets' should the market fall, will be worthwhile.
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Your result:
Mostly Cs - You are a medium-risk investor; you can look some way ahead, understand the potential for better returns and accept that some risk of loss is necessary to help achieve your aims.
What this might mean in practice
You take a realistic approach to risk, weighing the pros and cons. You can look-out over a longer time frame and recognise that longer-term growth through higher-risk investments is viable, before changing your approach to protect gains you've made as you approach the time your need for access to your investments gets closer. 'Layering' your investments so that some are lower risk (such a bond/gilt funds), some invested in the stock market (either through funds and ETFs, or directly in larger company shares and property funds) and a small proportion into higher risk investments such as small companies, overseas and emerging market and commodities could give you the returns you want with good control. Except for 'play' money, you'd probably want to steer way from highly volatile sectors, direct investment in very small companies and most derivative products, including CFDs and Spread bets.
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Your result:
Mostly Ds - You are a high-risk investor; strong returns are your goals and you appreciate that you'll have to accept a higher degree of risk and losses, for a larger proportion of your money to get them.
What this might mean in practice
Adventurous, though not to the point of all or nothing, you'll have longer to recover from any losses and accept that's all part of going for higher returns. You'll probably be looking at only a small amount in Bonds/Gilts; a higher amount of direct equity investment rather than Funds/ETFs and a higher share of more adventurous investments such as SmallCap and AIM shares and more overseas exposure, plus make more use of derivative-based investments such as Structured Products, Covered Warrants and CFD/Spread Betting.
Make sure you keep an eye of the balance of your portfolio and also on the time horizon so you don't get caught out just when you start to need access to your investments the most, or as your objectives change.
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Your result:
Mostly Es - Very high risk: you're willing to bet on success and are prepared for the consequences of getting it wrong.
What this might mean in practice
You have a very strong appetite for risk – wining is all that matters. For you the thrill is as much in the chase as it is the rewards. Be sure you know where you stand, that you understand what you are investing in, and keep a close eye on your overall position. This includes making sure you've access to sufficient cash or investments you can turn to cash without too much difficulty or too big a loss, in the short-term. Small cap investing such as EIS and Venture Capital Funds might appeal, Hedge Funds suit your approach and you're likely to be investing via CFDs and Spread Betting.
If it's all 'play' money that you're investing, enjoy the ride! But consider taking a less-adventurous approach to your retirement funds.
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Your result:
You have the same number of answers in more than one category. To get a clearer view, please review your answers and amend as necessary. Alternatively, if you feel your answer does not need amending, read the profile for each of the categories and choose the one that best feels right for you.
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