The risks of investing in shares are slightly different than for fixed interest investments. The risk of loss of capital is dependent not only on the performance of the companies in which you invest but on the cyclical movements in the share market and the length of time the funds are invested for. When investing in a share portfolio:
- Diversify your portfolio by geographic area, type of industry, and size of company
- Be prepared to leave your funds invested for as long as it takes to ride through market fluctuations, which could be ten years or longer
- Don’t panic when the market falls – falling markets are always followed by rising markets, and the best time to buy is when prices are down.
If your share portfolio is sufficiently diversified, your investment risk, in effect, becomes a time risk rather than a risk of loss of capital. That is to say, if the share market falls significantly, you face the risk that you may have to remain invested for a longer period than intended in order to recover value. The longer your investment time frame, the smaller this risk becomes.
Many investors, particularly those who are retired or close to retirement, make the mistake of misunderstanding what their investment time frame is. Your investment time frame does not end at the point when you start using the income from your investments; it ends when you need to withdraw your investment capital to spend. Investment capital is gradually withdrawn between retirement and the end of life, which could be a period of thirty years.
The biggest financial risk for retired investors is running out of money before they run out of life! To lessen this risk, make sure you put away enough money for your retirement and that you have some of your money invested in assets that will grow rather than be eaten away by tax and inflation – the two biggest enemies of investors.
The Lifetime Retirement Income Fund is designed to do this for you. Check out their Income Calculator Click to View