Balancing the three Rs is key to success MANY people in recent years will have had to make one of the most important decisions of their lifetime and ascertain their Attitude to Risk (ATR) when it comes to long-term savings.

This has been somewhat easier in the past as “Performance” charts gave a good indicator of what was actually happening, as well what might happen, although as we all know, there is no guarantee to this.

Following the stock market crashes after 9/11, the recovery was rather impressive and for nearly five years, we rode on the crest of a wave. This meant that nearly everything that was touched turned to gold. It was almost impossible to lose money on an investment. This boom came to a sudden and abrupt end during late 2007 and many investment vehicles started to lose money. Performance charts became redundant as unprecedented times were upon us.

During periods of significant growth, clients are prepared to take more of a risk with their money as they see the returns being made and they want to be a part of it, knowing fully the potential risks that are involved, but thinking “it will never happen to me”. The opposite is now being seen in the market, whereby clients who have seen the markets fall, are not prepared to take much risk with their capital, although now may be a good time to buy.

This is completely understandable.

However, it is entirely an emotional one because of what is being reported around them.

When considering your own ATR, it is normally considered on a Risk vs.

Reward basis. Quite simply, the greater the risk, the greater the potential reward and vice versa. This is something that is up to each individual, and one that you must be comfortable with at the outset because in some instances, it cannot be changed.

For most investments however, you can assess your ATR throughout the term, and this is something I would strongly recommend you do, at least on an annual basis. It is normally those who do not review arrangements who receive nasty shocks.

To make the most from your investments, you may wish to consider investments which re-balance on a regular basis. This, in theory, locks in the gains and minimises the losses, thus providing a smoother return during the investment period. Obviously, this may not be suitable for everyone and advice should be sought before making any changes to your arrangements.

You should always consider your ATR based on three main factors; namely: The level of Risk you are prepared to take, the level of Return you want to achieve and the Term you want to invest for. Finding the correct balance between these three can make the difference between a successful or disappointing portfolio.

Karl Pemberton is director of Active Financial Services, in Guisborough.

Call him on 01287-632367.