Reducing Risk

It’s well known that you have to take a risk to get a good return. What isn’t explained very well is that if you divide your money up and take different types of risk the overall level of risk reduces.

Many years ago an investment with an insurance or investment company was simply invested with them in one of their policies. You suffered the same fortunes as everyone else. The cash value of your investment was probably unknown until you died or the policy matured. Not a very satisfactory state of affairs.

From about 1980 onwards new types of ‘Unit Linked’ investments started to appear. These had the advantage of being visible, the Unit Prices were published every day so you could keep track.

Some of these companies had a choice of funds so you could even choose to invest in property or equities. But the vast majority of people didn’t and just chose the default fund (known as Managed). So most people were no better off and most people didn’t check the progress or if they checked they had no way of knowing if it was good or bad.

Fast forward to the current day and with modern technology and intensive competition there is such a bewildering choice that most people…… you guessed it, stick with one company and don’t check the progress.

To reduce risk we have to travel back in time and follow the old wives maxim, Don’t put all your eggs in one basket.

If your investments are in the Managed fund ask why? How does your companies managed fund compare with others? Do they have better options? Why haven’t you reviewed them? How do you feel about your investment being half the size it could have been if you had reviewed it 10 years ago?