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High vs Low Risk Investments – Which is Best?

Investing

High vs Low Risk Investments – Which is Best?

Image courtesy of investmenttotal.com

Image courtesy of investmenttotal.com

If you are thinking of investing your money then you will be able to choose between different levels of risk. A high risk investment could potentially give you a much bigger return on your money but you could lose everything you have invested and possibly even more as well. A low risk investment will usually give you a much lower return but you will not risk losing so much money if any of it at all. Usually most people would go for something in between.

When you are deciding about making any investment you need to think about the money and whether you can afford to lose it. Even a low risk investment poses some risk and you could potentially lose the money. Some investments, such as draw down schemes, help to protect you against this by investing money for a long term and as the term gets nearer to the end cashes in some investments so that by the end of the term all is in cash and you can withdraw it. If you do not have a scheme like this, perhaps for an endowment or pension, for example and the stock market crashed on the withdrawal date you could end up with too little money for your needs. If you need the money to pay for specific things then it could be really difficult

It is also important to think about your personality. Would you feel comfortable investing your money in a high risk account or would you rather that you knew the money was safe and protected. You may need to take a small amount of risk in order to get a decent return on your money but would you be prepared to do that? If you can just invest the money and forget about it, then you may be more prepared to take some risk. However, if you will be worried about the money all of the time and constantly checking to make sure that it does not go down in value then the stress may just not be worth it. Stress can be really damaging to health and if you are worried a lot, then it may just not be worth the potential gain in finances you get as a result as they may not bring you enough pleasure to make it worth that stress.

You may find that any investment is too stressful for you or that you cannot afford to risk any of your money investing. On the other hand you may be quite happy investing some spare money that you have. It is worth considering hard though as if you need the money back, it may not be easy to get it and the value may have dropped. It is worth remembering that investments should last for the long term not a short term and therefore you should not consider drawing the money back out for at least a few years but preferably a lot longer. You should certainly not be relying on being able to get it back if you need it in an emergency.

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Rachel Henderson is a professional freelance writer from the UK. She writes on many subjects but specialises in personal finance. As well as contributing to various blogs and websites she has her own website tracking her own money making process http://www.turnonepoundintoonemillion.com and sells her books through http://www.bowbridgepublishing.com.

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