Background
In Harvest, we pay a lot of attention to risk and we like our clients as far as possible to understand the risks associated with every investment they make. We put particular emphasis on helping our clients to appreciate the difference between exposing their portfolios to risk of permanent loss (as can arise with geared investments) and risk of cyclical loss (from normal market fluctuations).
Our Investment Committee allocates each investment on our list of recommended funds a risk rating based on its volatility. For risk levels 1-7, the ratings correspond with the official ESMA ratings but we also allow for three higher risk categories which fall outside the ESMA universe. These risk ratings are provided as a guide to help you make informed investment decisions. All investment decisions should be made within the context of your investment needs and objectives with an appropriate diversification of assets.
Investment is about risk and reward. High risk brings high “potential” reward and vice versa. In putting together an investment portfolio, one aims to tilt the risk/reward balance as far as possible in favour of the investor, allowing the investor exposure to the maximum potential reward at the minimum possible risk. The personal circumstances of the investor as well as the investor’s own attitude to risk will, broadly, determine what the acceptable level of risk is for the investor concerned. While a number of factors should be taken into account in setting the level of risk, the overriding influence from a purely objective standpoint is the time horizon of the investor. For example, a 30 year old investor can afford exposure to considerably more risk than the life savings of a pensioner.
From the outset, it is also crucially important that the aims and ambitions for the fund are agreed between the client and the financial adviser and are set out clearly. The principal items to be agreed include the level of income required in the future, the timing of that income and the level of annual contributions which are expected to be made to the fund on an ongoing basis. The answers to these questions will determine the level of return required to meet the agreed targets and will thus greatly influence the level of risk to be borne by the fund. For example, there is no point in a fund carrying a large equity exposure when the required level of return can be easily met from lower risk assets.
Deciding on what proportion of your fund is invested in the major asset categories (equities, bonds, cash etc,) is known as asset allocation and is a very important first step in building your portfolio. In fact there are plenty of academic studies which suggest that the asset allocation step has a bigger influence in determining the overall performance outcome than the selection of the individual investments to be included in the portfolio.
We also prefer to steer our clients towards pooled liquid investment structures (unit funds, ETFs and investment trusts) and to keep exposure to direct equities, unlisted investments and direct property to a minimum. We maintain a Recommended List of such liquid pooled investments as an aid to constructing appropriate portfolios for clients.
General Risk factors
There are a number of defined risks associated with investment activity of which investors should be aware. Among these are the following:
Specific Risk Factors
In addition to the general risks set out above, there are also risks which pertain specifically to separate asset classes. These are described below.
Investing directly in shares may involve the following risks:
Purchasers of bonds are in effect lending money to the issuer, whether that be a government or a company. As a result, the risks associated with bonds can be very different from shares. Among the specific risks are the following:
Funds are collective investments and the category can include can include quite a wide range of structures. Most funds available to to retail investors are open ended UCITS structures offering a high degree of liquidity. However, the category also includes closed-end funds which may be listed offering good liquidity or may be unlisted with very limited liquidity. Among the specific risks pertaining to funds are the following:
Shares and bonds not listed on regulated markets carry particular risks as a result of being unlisted. Among these risks are:
This marketing information has been provided for discussion purposes only. It is not advice, it is provided for general information purposes only and does not fully take into account your financial position, investment needs and objectives, attitude to risk, liquidity needs, capital security needs, capacity for loss, etc. It should therefore not be relied upon to make investment decisions.
Prior to any formal investments taking place you will be provided with a detailed suitability letter taking into account all the above and outlining why the investment(s) are (not) suitable for you.
Warning: The value of your investment may go down as well as up. You may get back less than you invest.
Harvest Financial Services Limited is owned by ILGWM Limited (a subsidiary of Irish Life Group), which is part of the Great-West Lifeco Group of companies.
Harvest Financial Services Limited is regulated by the Central Bank of Ireland. Registered in Ireland No.137567.
Registered Office: Block 3, The Oval, Shelbourne Road, Ballsbridge, Dublin 4. Postcode: D04 T8F2