What’s Your Attitude to Risk?

Written by Karen Bryan

attitude riskYour attitude to risk will determine a lot of your financial decisions in life, such as where to save e.g. do you go for “risky” share trading or for “safer” bank savings accounts.

In the UK, savings in a bank or building society up to £85,000 per person are guaranteed by the Financial Services Compensation Scheme. However you need to check this out carefully as sometimes several banks & building societies are part of a group and the £85,000 limit applies to total savings in all parts of the group.

However your only possible gain on savings in bank or building society is the interest rate on offer.  With inflation currently higher than even the highest 5 years fixed rate savings account, there’s a risk of your savings losing spending power during the period of investment.

However if you make investments in stock market based investments such as shares, unit trusts and personal pensions, your initial investment is not guaranteed, but there is also the possibility of making a much bigger return on your investment than having the money in a bank or building society savings account.

Some people will point to past performance and say that on average the stock market has offered higher returns than savings in a bank. Of course, a lot depends on the price you pay for your stock market investment and the price at which you sell. If you have substantial savings you could split them between safe ans risky investments, so if things go awry at least you won’t lose all your savings.

Personally I’m quite risk averse, driven by the fear of losing what I have. Most of the time I opt for a lower return but a guarantee of capital preservation. My main foray into stock market investment is my stakeholder pension.  Part of the attraction of this investment was the tax rebate (currently 20%) on the amount I put into the pension scheme. However I’m now getting a bit jittery as I feel I can’t plan my retirement, as I’ve no idea when the value of my pension pot will pick up again and what annuity rates will be at the time I’ll want to retire.