How much risk are YOU open to? DIY investors are taking more chances as market confidence grows
- Optimism has returned to investors, with many eyeing dicier investment picks
- Younger investors are leading the charge, with millennials not far behind
A third of DIY investors want to take a higher investing risk over the next three months, research shows.
Those taking financial advice are actually more willing to make riskier investments, according to research by Charles Stanley Direct.
More DIY investors said they want to take more risk than they normally do, with 10 per cent planning to significantly increase their risk exposure.
While 95 per cent of DIY investors are looking to take some risk over the period, 11 per cent said they are willing to take 'very high' levels, while 23 per cent will take 'high' levels.
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This comes on the back of increasing confidence in the UK's stock market, with almost three quarters expecting the FTSE to rise over the next six months. Just 10 per cent of investors said the FTSE will fall in the same period.
Younger investors, who generally have larger risk appetites, appear to be driving this growing confidence.
As many as 80 per cent of Generation Z DIY investors are banking on the FTSE rising, with 77 per cent of millennials also backing market growth.
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More than half (61 per cent) of those in Generation Z said they were willing to adopt a bullish approach, while 39 per cent of millennials said they were planning a 'high risk' approach.
This compares with just 9 per cent of over 59s intending to make risky investments, with a majority, 51 per cent, aiming to take low or no risk.
Despite a far lower appetite for risk, 64 per cent of over 59s said they expect the market to rise, the same as those in Generation X.
Rob Morgan, chief investment analyst at Charles Stanley Direct, said: 'Younger investors are driving forces of optimism, and rightly so. Those who can afford to take on higher risk at the moment are likely to be well rewarded. Despite a rocky global market dip at the beginning of the month, the FTSE is up 6 per cent year to date and rebounding well.
'Investors who have been actively increasing their exposure to British equities over the last three months - at a higher rate than their global investments - will be well positioned to realise their financial ambitions faster and more effectively than their passive peers - but all investors should be following the same rules; investing for the long-term, with a diversified portfolio, and advice where appropriate.'
How much risk are you open to?
Deciding what risk you are willing to take can be a difficult decision. The direction you take your investing will largely depend on a number of factors.
Bear in mind that even with low-risk investments there is a possibility that your return might not be favourable. So it is essential that you can afford to lose whatever you invest, and you have money left over to deal with emergencies instead of having it tied up in investments.
Claire Exley, head of financial advice and guidance at digital wealth manager Nutmeg, said: 'Generally, when it comes to investing, the longer you plan to invest, the higher risk level you could choose. For example, if you're investing for a house you plan to buy in three to five years it may be more appropriate to take less risk than if you're investing your pension for 30 or 40 years.'
Usually, the higher the risk level, the higher the potential returns – but your investments are also likely to fluctuate in value over time, so you need to be comfortable with your portfolio going down as well as up. No investment is risk free and returns are never guaranteed.
Timeframe
The longer the timeframe of your investment, the lower risk you are exposing yourself to.
'Shorter timeframes carry a higher chance of investors getting back less than invested,' Dan Beecroft, foundation planner at Charles Stanley, said. 'A longer time horizon offers greater opportunity for the investments to grow and recover from any market falls, providing an opportunity to take greater risks.'
If you are intending to access your money in less than five years' time, then it might be wise to consider other options to investing altogether.
Aims and capacity for risk
Establishing your reasons for investing is key to understanding what risk you can take. If you are investing to create a stream of income, then ensure that you can afford to lose money before taking big risks. If you need a stable return, then lower-risk options would be a better choice.
On the other hand, if you can afford to leave your investments for long periods then higher-risk options could work.
Keep it diverse
Ensuring that your portfolio is diverse can help to protect you if one of your investments falls flat.
'It's a good idea to diversify your portfolio – with a mix of bonds and equities from different sectors and geographies, Exley said. 'This should help to smooth any market volatility impacting one sector or geography.'
If you are unsure what risk you should be taking, Exley suggests taking an online questionnaire to help you understand how you feel about risk and your attitude toward losing money.
Also responsible for the growth of confidence in the market are investors who opt for an adviser-led route, with 67 per cent intending to expose themselves to higher risk over the coming months.
Only 33 per cent of those without financial advisers said the same.
As a result of this growing confidence, 40 per cent of investors have increased their holdings in the FTSE 100 over the past three months.
Around 35 per cent are also opting to up their exposure to the FTSE 350, and 28 per cent are increasing their stakes in the Alternative Investment Market.
Morgan said: 'The UK has a thriving network of DIY investors - people who are proud to make their own investment decisions and turn their financial ambitions into reality. Those investors are currently recovering from a tough few years, full of economic uncertainty, political turmoil, and market volatility.
'Now, the future looks bright, with expectations for higher growth, lower interest rates, and something that looks suspiciously like stability.'
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