Your Attitude to Risk: Balanced investor
Having reviewed the answers to the risk profile statements, the risk category has been calculated and the results suggest you are a Balanced Investor.
Potential Returns – Balanced Investor
When investing, you must accept there will be times when the value of your portfolio will fall. There will be good years and bad years. The important thing is to understand the potential volatility of this investment strategy, what a bad year might look like and be able to cope with it.
As an example only, were you to invest in the illustrative asset allocation then the downside risk in a single bad year is estimated as a loss of 10% or worse of your investment before charges (equivalent to a £10,000 loss or worse on £100,000). The likelihood of this happening is estimated as having odds of 1 in 20 each year. A bad year could occur at any time, including the first year of the investment.
But remember, there are no guarantees. Also, it is important to be aware that your actual investments will be different – Fund Managers will not hold the same investments as the illustrative asset allocation, and so will give rise to different outcomes for potential loss/volatility and potential returns.
There are no guarantees with this investment strategy and actual results achieved may be higher or lower than those shown. As the investment strategies increase in risk and potential reward, so does the amount you may lose in a bad year. Conversely the investment gain in a good year also increases. However, we believe these probable returns are a sensible way of understanding the potential downsides as well as the upsides when saving or investing this way.
Potential gain
The graph below is an example of the potential returns based on an assumed £100,000 invested for a term of 10 years following the illustrative asset allocation, assuming no charges, no active management and with regular rebalancing. The chart has been simplified, in that it does
not show potential daily market fluctuations, or account for your specific financial objectives, but is an illustration of the variability in long term returns before charges that might be experienced with the illustrative asset allocation:
Potential Growth
Average Growth
Lower Growth
The top line shows there is a 1 in 10 probability of achieving at least £187,605 after 10 years. This is what you might get back from your original investment if market conditions are very good.
The middle line shows there is a 1 in 2 probability of achieving at least £136,651 after 10 years. This is what you might get back from your original investment under average market conditions.
The bottom line shows there is a 1 in 20 probability of achieving less than £93,907. This is what you might get back from your original investment if market conditions are poor.
Strategic Asset Allocation – Balanced Investor
Balanced investors typically have modest levels of knowledge about financial matters. They may have some experience of investment in riskier assets.
In general, Balanced investors prefer not to take much risk with their investments, but will do so to an extent.
They prefer lower risk assets, but realise riskier investments are likely to give better longer term returns. Balanced investors can take some time to make up their mind on financial matters and can often suffer from regret when decisions turn out badly.
Risk attitude is only one factor in determining a suitable investment strategy. You must also consider your ability to withstand short term losses, and your need to take risk to achieve your financial goals.
