Attitude to risk is how you feel about taking investment risk. And, whether you can, or even need to take any risk financially. It's individual for everyone and likely to affect where you invest your money. You should not take more investment risk than you are comfortable with.
Remember that investments can be volatile with values rising and falling - higher risk investments that have greater return potential often can be more volatile. The key is feeling comfortable with your approach and choosing wisely based on some key factors:
Know your goals
Whether it’s a new home, dream retirement or you’re focused on growing your wealth for a better financial future, knowing your goals can help you think about why you’re investing and what your plan will be.
Think about time horizon
How long you plan to invest is important. If you want to save for a year or two, it’s wise to put your money in a bank account where it’s secure and won’t drop in value. A general rule of thumb for investing is staying invested for a minimum of five years.
Typically speaking, longer-term investment horizons may allow you to maximise the risk you are willing to take as investments have a higher possibility to recover from market downfall.
Therefore, you could afford to be more adventurous in your investment choices. While a shorter time horizon means less recovery time, so you may want to be more cautious.
Pay attention to your emotional wellbeing
Money can be a source of worry for many people. Markets fluctuate - they can go down as well as up. So, it’s important to think about your emotional response to your investments possibly falling in value. Can you survive losing money without sleepless nights? Or are you at peace with accepting the risk of greater losses for the potential of higher returns?
Recognise your tolerance to loss
It’s important investing doesn’t have a negative impact on your lifestyle. Ask yourself whether losing money on your investments will mean a change for your living standards.
If you're still unsure about your risk appetite, knowing more about investment risk could help you understand how you feel about it. Our principles for good investing may be able to guide you. Or you can speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
