Risk is a heavily loaded word. If not clearly understood in financial terms, it can cause heavy losses. What is it you are getting into and can you really stomach these losses? For seasoned and successful investors, you may decline to read any further, although a well-informed and exercised mind is the key to achieving success. If you have the means and an appealing opportunity sitting in front of you, will you eventually reap the rewards without any loss to you? If you don’t, where will that put you and yours at the end of the line? These types of questions are often a good place to start or reflect upon. Even amongst today’s volatile geo-political events, such as US-China trade wars and seemingly disorderly Brexit, whether investment capital is presented on an individual or pooled basis, there are still opportunities that turn up every single day. It could be the apartment in the idyllic seafront location with historically proven income streams, or the structured investment product offering capital guarantees and fixed growth for the next five years or more. Just how safe is your capital and how certain is the return when you get into an opportunistic arrangement? In the entire history of mankind there has never been a truer word spoken than “money makes money”, which also has to be closely followed by “if it’s too good to be true, it probably is”.
Rather than being swept off your feet for the ride of your life by the stunning writing on the package or the alluring words drifting through the air, you have to make sure it makes good sense all the way through. After all, if you aren’t in control before you jump, who is? Bricks and mortar or an investment plan won’t be there to provide a shoulder to cry on if things don’t go your way.
The risk starts and ends with you, and somewhere in the middle of all that, it is the risk that is presented to you and how you digest it. For example, even buying property on the premise of capital and income growth when lending rates are negative, risk from an over-exposure to property is often ignored by the fact that many already own at least one property as their main residence. Property speculation meant that after the global financial crisis and credit crunch, investors fell prey to property overload and, as a result, stuck with large capital losses and no demand in a secondary market to realise much-needed capital.
Those who sought a different methodology of return outside of the property market and into investments that can “do the job” found that, in some cases, the capital was at even greater risk than they had perceived when the focus from the start was a guaranteed double figure annual return. In these cases, investors had often not fully understood what the term “guarantee” would mean when interest rates have remained so low for so long.
Logically, any investment opportunity should aim to achieve what it is you have set out to accomplish and complement what you have in place already. Look at the income or capital growth you will have access to. After tax, will it meet your needs, and will the arrangement be illiquid to the point that should something turn up tomorrow which turns your world upside down, you have to then sell the shirt off your back?
Stay well in your comfort zone and any risk you take is truly understood so that you are not left with the hollow and empty afterthought of “it seemed a good idea at the time”. Professional and objective opinion that is not fuelled by a transactional-bias, but rather an understanding of your financial life and appetite for investment risk, has a far greater chance of giving you financial success. Truly independent financial advice, therefore, not only should explain the risk of an investment opportunity to you, but also add focus on your goals in understanding the risk you really want to take.
All statements concerning tax treatment and their benefits are based upon our understanding of current tax law and practices both of which are subject to change in the future. Levels and bases of reliefs from taxation are also subject to change. This article is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investments or course of action.
By Raoul Ruiz
|| features@algarveresident.com
Raoul Ruiz Martinez is a resident and independent consultant for Finesco Financial Services Ltd., Glasgow and advises clients on private financial matters in both the UK and throughout Europe under the MiFID regulation. Finesco Financial Services Ltd is authorised and regulated by the Financial Conduct Authority (FCA). Some of the services provided are not regulated by the FCA because they are not included within the Financial Services and Markets Act 2000. | 289 561 333
