Past investment losses and drawdown
Before you decide to invest, it is very important that you ask yourself how comfortable you would be if your investment fell in value especially in the short-term.
Investing should always be considered over the medium to long-term (typically, 7 years or more) so as to reduce the risk of short-term market volatility.
This is to give your investment time to grow in value and to have the potential to recover any losses that may occur - see our graph on holding period 7 years and probability for loss.
In general, the greater the return you want from your investment, the greater the level of risk you will have to take.
However, even long-term investing involves risk as values will fluctuate over time - the above graph depicts the major drawdowns for the S&P500 between 1950 and 2016.
If you are investing into a MEDIUM RISK (ESMA 4) investment fund you need to be prepared for volatility like that depicted above.T
he S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalisation.
What are your investment options ?
Most investment companies now rate all of their investment funds into risk categories so that investors can understand the level of risk involved in their choice of fund.
Risk is rated on a 7 point scale of very low to very high risk, with ‘1’ being very low risk and ‘7’ being very high risk.
Low to medium risk funds have the following characteristics
They offer the potential for returns in excess of deposits but do not promise a minimum return at any time. • They tend to invest in a range of assets, normally focusing on lower risk assets such as government bonds and investment grade corporate bonds.• However, they also typically invest in higher risk assets such as equities, property and alternatives (e.g. commodities). At times these investments may be a significant proportion of the fund.• Investors’ capital is less exposed to market fluctuations than higher risk investments but investors may get back less than they originally invested.
Medium risk funds have the following characteristics
They offer the potential for returns in excess of deposits, but do not promise a minimum return at any time. • They tend to invest in a range of assets, including lower risk assets such as government bonds and investment grade corporate bonds, but are more focused on higher risk assets such as equities, property and alternatives (e.g. commodities). • Investors’ capital is less exposed to market fluctuations than higher risk investments but investors may get back less than they originally invested.
Medium to high risk funds have the following characteristics
They aim to generate a return higher than deposits and inflation. • They typically invest significant proportions in assets such as equities, property and alternatives (e.g. commodities). They usually hold smaller amounts in lower risk assets such as government bonds and investment grade corporate bonds. • Within these asset classes risk can be reduced by investing across sectors and geographic regions. • Investors’ capital is not secure and can fluctuate, sometimes significantly, and investors may get back less than they originally invested.
High risk funds have the following characteristics
The potential return from high risk investments is much higher than deposits or inflation. • The focus is on maximising the potential return to investors rather than minimising risks. • Some high risk funds may consist almost entirely of one asset class or be concentrated in one geographic region or sector. • Investors’ capital is not secure and may fluctuate significantly. Investors may get back substantially less than they originally invested.
Want to know more? We are available to discuss your options, and we look forward to hearing from you.
Our job is to help you choose a product and structure that will help you meet your goals.
telephone | 091441188 and/or email | office@nelsonlife.ie
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WARNING: Past performance is not a reliable guide to future performance. WARNING: The value of your investment may go down as well as up. WARNING: You may lose some or all of the money you invest. WARNING: These funds may be affected by changes in currency exchange rates. WARNING: If you invest into this product you will have access until you retire (Pension Products). WARNING: The above content does not constitute investment advice, as it does not take into account the investment objectives, knowledge and experience of financial situation of any particular person. Prospective investors are advised to make their own assessment of the information contained herein and to obtain professional advice suitable to their own individual circumstances. WARNING: The information contained in this document is based on our understanding of current tax legislation and the current Revenue Commissioners interpretation thereof and is subject to change including retrospectively without notice. This is intended as a general guide only and is not a substitute for professional tax, legal and investment advice.