Investment risk

Surely there is always a risk when money is invested. It's a matter of the degree of risk that you are prepared to take that is important. High risk is when you are investing money that you cannot afford to loose. It does not matter what the investment is. After all, ten years ago you would have expected bank shares to be the safest possible investment but look what happened to them. Equally many pension plans have plummeted in value and I was bought up to believe that that was the safest possible investment for the future. I'm older and slightly wiser now.

You gauge risk by how much risk you are prepared to take linked to what kinds of asset class you invest in and what kinds of returns that you wish to seek. This requires a lot of research.

It depends on what kind of risk you're talking about...

- Inflation risk: That your investment growth (or income) does not rise in line with inflation, eroding your spending power over time.

- Loss risk: That your investment makes a real loss due to e.g. the asset class you invest in declining in value.

- Tax risk: That any favourable tax benefits on your investment are lost (e.g. tax relief on pensions).

- Incompetence risk: That the people you invest / save with go out of business (e.g. northern rock, any icelandic bank).

Basically, just think in terms of:

(1) What are my chances of losing money?
(2) What are my chances of making money?

If the chances of (1) are greater than (2) then don't invest as it's way too high risk.

Responding to G-Man's post explaining investment risk, I have Copy and Pasted it to my Home Accounts file as a reminder when I start to invest . Many Thanks!