Unlike volatility, these 11 risks can actually pose a threat to your financial future
This article is all about risk, but maybe not the first risk you think of when it comes to your financial future.
In my experience, and that of adviser colleagues I talk to, the biggest fear many clients have involves the risk of stock market volatility, in particular the danger of big losses at a time of excessive market turbulence.
The media are far too keen to run lurid headlines about “billions wiped off the value of shares” whenever there’s a market downturn. Because of that, it’s understandable that recent events such as the pandemic and President Trump’s tariff announcements have caused a sudden loss of investment value, and can easily cause many sleepless nights.
However, there are three important points you need to remember when markets do fall:
- History tells us that markets will recover after a downturn.
- With an effective investment strategy, the value of your portfolio will increase in the long term.
- You will only lose money at times of market turmoil if you sell stocks.
With the right investment and income plans in place, market volatility should be a negligible risk, and certainly not one to cause you to lose sleep.
However, there are some risks that are far more serious and can damage your wealth and threaten your financial security.
Here are 11:
1. Not having a plan
Leaving your financial future to chance will result in you being rudderless and unable to adapt to changing circumstances. Having a robust plan in place provides you with stability and can help keep you on track to achieve your goals.
2. Inflation
There’s a reason why many experts call it the “silent killer” of your wealth. It will reduce the purchasing power of your money year-on-year, and it will threaten your financial security if you don’t plan for it.
3. Not saving enough
Setting money aside for your future each month should be one of your top financial priorities. Set up direct debits for the day your salary goes into your account, so you are paying yourself first. I’ll always suggest you save more than you are entirely comfortable with.
4. Not insuring your income
If someone gave you a money-making machine that produced thousands of pounds each month for 40 years, I bet you’d take care of it and insure it so if it ever broke down, you’d still get the money. You may be that machine for your family, so why don’t you insure your income?
5. Any permanent loss of money
Natural volatility is inevitable, given the nature of markets. But bad investment decisions are hard to reverse, especially if they stem from you chasing returns to offset losses.
6. Short-term thinking
Investing money for anything less than five years is dangerous. Likewise, your financial plan should have a long time frame. You can have short-term goals and spending commitments, but they should form part of a comprehensive, long-term plan.
7. Panicking at a bear market
It’s easy to overreact to bad financial market news, rather than tuning it out. With an effective investment strategy in place, you should be able to take advantage of a market downturn by buying quality stocks at a cheaper price.
8. Trying to time the market
One of the oldest investment adages refers to the fact that one big key to investment success is “time in the market, not timing it”. If you try to predict the ceiling and floor of a market, you need to be lucky twice.
9. Outliving your money
As the saying goes, “You can’t take it with you when you go”. But how do you know when you will go? You should respect longevity, and with careful planning, you can enjoy it as well.
10. Not diversifying your investments
One of the best ways to mitigate investment risk is to diversify. Various markets react differently to certain economic and geopolitical events, so by investing in a wide range of them, you will increase your chances of enjoying consistent growth.
11. Not knowing what you don’t know
The legendary investment sage, Warren Buffett, famously stated that “risk comes from not knowing what you’re doing”. It’s important to recognise your own limitations when it comes to managing your wealth, and be prepared to take advice from experts.
Get in touch
If you would like to talk about your own financial plans, or any of the risks I’ve raised in this article, please get in touch.
You can call me on 07769 156 250.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
