5. The actual investment you’re considering

Different investments carry different levels of risk. All investments involve a degree of risk and returns can never be guaranteed so it is important to choose investments that suit your circumstances. Below is a table that illustrates a range of investment types and their associated risks.

CFDs and Financial Spread Betting may not be suitable for all investors; therefore you should understand the risks involved and seek independent advice if necessary. If the price of a CFD or Financial Spread Betting trade moves against you, you could face unlimited losses and the need to make additional payments. You could lose all the money you have invested and you may have to pay more at a later date.

Warrants are not suitable for everyone. You should not deal in warrants unless you understand their nature and the extent of your exposure to risk. You should be satisfied that they are suitable for you in the light of your circumstances and financial position. CFDs, spread betting and warrants are investments ISACO avoids. Instead we specialise in investing in high quality investment funds (or OEICs, which stands for Open Ended Investment Company) and use tax-efficient wraps such as ISAs and SIPPs to boost returns and shelter gains from the tax man.

In conclusion

When considering your investment risk tolerance, some simple rules to consider are:

• The greater return you want, the more risk you’ll usually have to accept.

Investing in share-based assets has proved to be the best way of achieving growth that outstrips inflation. There is a risk attached but when you invest over the long-term, you gain time to recover your losses after the inevitable and never ending market correction periods.

As always, if you have any questions or thoughts on the points I’ve covered, please leave a comment below or connect with us @ISACO_ on Twitter.

Please note past performance should not be used as a guide to future performance, which is not guaranteed. Investing in Funds should be considered a long-term investment. The value of the investment can go down as well as up and there is no guarantee that you will get back the amount you originally invested.

About ISACO

ISACO was established in 2001 by brothers Stephen and Paul Sutherland and is the first financially regulated firm to offer adventurous ISA and SIPP investors a unique personal investment service that shares on a daily basis our star-performing investor’s thoughts, personal insights and investment decisions.

Clients enjoy being informed throughout the year what ‘best of breed’ funds our premier investor currently owns, when he’s buying and when he’s moving into the safe harbour of cash – helping clients enjoy more control, manage their portfolio more effectively and benefit from the potential of outstanding long-term returns.

For more information about ISACO and our Investment Guidance Service, please read our free brochure .