Investing is often said to be a long-term activity. Why is this and what should you consider?
General economic factors, business conditions and political events are just some of the things that can cause uncertainty in the market. Over any given time period the economy can also go through a series of ups and downs.
Markets can quickly react to short-term events, so if you're looking to invest your money over a short period of time, such as less than 5 years, it may not have enough time to recover from any dips in value. If you invest for 10 years or more you may increase the chances of your investments recovering from short-term falls in the market.
You'll often hear the expression 'with investment comes risk', as there's always the possibility that you could get back less than you invest. Everyone is different in the amount of risk they're willing to take with their money and how much capacity they have for loss.
Investment funds can be made up of different types of assets, which all have different levels of risk, for example investing in bonds is generally considered to be lower risk than investing in equities. When you choose funds you have the option of choosing a fund that invests across one asset type, sector or geography or in a range of assets, sectors and geographies. The latter approach could help to spread the risk of your investments so that potential losses in one area may be offset by potential gains in another although there are no guarantees.
Higher risk investments have the potential for higher returns over the long-term, but they're also likely to be more volatile and suddenly fall or rise in value. Whereas lower risk investments will usually be less volatile but are more likely to give you lower returns.
Before you invest, making sure you're aware of the different investment risks will help you to understand how comfortable you are taking risk with your money.
Please remember the value of investments can go down as well as up and you could get back less than you invest.
Why not see how much a Stocks and Shares ISA might be worth in the future.
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