Understanding Financial Risk

No-one likes to think that they are exposing investment to any degree of risk but there is risk in everything, you only have to look at the Banking crisis recently to see that even cash held in deposit can carry some risk..

Fairway Financial Management believe that a sound understanding of risk and how it relates to our finances is absolutely vital to your future prosperity.

When considering our clients needs we first begin by establishing their attitude to risk. This is different for everyone as it will depend on age, sums involved, time scales and the clients responses to a number of control questions. All these factors are used to establish a mix of different assets which a computer model calculates is most appropriate for that client.

These assets include: Cash, Fixed Interest investment such as Government Bonds, Property including commercial property, UK based stocks and shares as well as shares in other markets including those of the emerging markets like India and China. In some cases, the asset allocation indicates the need for a broader spread to include funds that invest in commodities or other investment vehicles.

The reasoning behind the spread of the investments is that when one investment performs well another will perform in a different way. This is referred to as correlation and the correlation between the various assets in a portfolio is what allows us to reduce the overall risk to a clients investment portfolio. This process is referred to as Diversification and is at the heart of what we do for our clients.

It is important to remember that this is not a static position and often clients asset allocation positions will change particularly as they get older or their needs change. Managing these changes is a fundamental part of our ongoing client service which is generally covered by incomes derived directly from the investment managers.

Investment Risk versus Reward

 

 

Please note: We do not provide advice regarding the direct ownership of shares.

Important Notice:
The value of investments and/or pensions can fall as well as rise and you can get back less that you invested. Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.