Would you take a financial risk?
PUBLISHED: 16:21 26 April 2019 | UPDATED: 16:21 26 April 2019
Extreme risk is not for everyone, says financial guru Peter Sharkey.
Although many people get fed up with emails asking if they can spare five minutes to answer a questionnaire, opinions and attitudes matter a lot nowadays which explains why surveys and their results are so valued.
Of course, if they're to be of any use, surveys must be well constructed and taken seriously. A few years ago, a friend designed a questionnaire for his staff as part of a health and safety exercise. One question asked, “If a fire started in the building in which you were working, what steps would you take?” The response from one person was: “Very big ones”.
Survey findings are often weird enough to make you wonder whether they're actually accurate. For instance, a recent survey found that 46pc of people believe that stormy weather affects cloud computing. Meanwhile, 58pc of British teenagers think that Sherlock Holmes was a real person; the same cohort believe that Richard the Lionheart was a fictional character.
Perhaps the best response to surveys came recently in the US where one organisation discovered that 75pc of Americans don't trust surveys because their results are manipulated.
Given this article's introduction, this might sound a little crazy, but I recently undertook half a dozen of those online surveys which measure your attitude towards risk. It wasn't as though I suddenly had loads of time on my hands; instead, my survey-fest, which included everything from simple, 10-question versions to much lengthier, psychological testing, was an attempt to establish where my appetite for risk stood at least a decade after last completing a similar exercise.
My theory is that because individual risk surveys are designed to be used by anyone who lands on a specific website, they're a little one-dimensional, but averaging your score from a broad selection of surveys should give a reasonably accurate picture of how you feel about risk.
Overall, I was deemed to be part of a group who are, to borrow from one conclusion, “...balanced in their attitude towards risk…[and] prepared to accept fluctuations in the value of their investments to try and improve longer-term returns.”
That sounds a reasonably accurate assessment and proves that our attitudes towards risk and a host of other things change over time.
As a younger man, I was happy to accept much greater levels of business-related and investment risk, mainly because the potential rewards made them worth taking, but goodness, did I learn that constantly chasing rainbows is definitely not a great strategy to adopt.
Of course risk, and our reaction to it, is usually a factor whenever we buy a product or service which has an unknown outcome.
For example, placing a few quid each-way on the Grand National buys you two things: the opportunity to experience an adrenaline rush that comes from watching your horse gallop towards the finish line. Second, there's the chance you could win some money if it finishes in the frame. We experience something similar when watching a football or rugby match, invariably spending more money, but the sense of joy when your team wins is significantly greater too.
It's difficult to equate saving and investing with your team notching an injury-time winner because the investment process is so much longer. Nevertheless, investing also involves buying a product (a fund or shares), the longer-term performance of which is unknown. However, when you reach the investment equivalent of injury time, joy can be overtaken by ecstasy
Let's say a couple saving for a house put £50 a week each into an ISA for around five-and-a-half years, generating an average annual return of 5.25pc. At the end of their investment timeframe, they will have accumulated £33,074, almost exactly the amount needed for an average deposit on a house.
Generally speaking, these investment returns do not require you to take outrageous risks. Indeed, those of us considered “ balanced in our attitude towards risk” might subsequently opt for a balanced ISA portfolio comprising investments in companies such as insurance giant Legal and General, oil majors BP and Shell, or Lloyds Bank, or Louis Vuitton and a host of others.
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Lester Petch, CEO of TAM asset management, notes that “each of the companies to which you refer form part of our balanced ISA portfolio, together with other, fund-based investments in Unilever, Sage and a number of companies boasting household names.”
While risk is an integral part of investing, there's no need to back small, obscure firms to enjoy steady returns. Sticking with the big boys can prove equally rewarding.
TAM Asset Management Ltd offer investors the opportunity to invest monthly in a balanced ISA portfolio from as little as £25 a month. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
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For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.
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