Before investing in any financial market. people should carefully study the risk warnings. There will always be some risk attached to any investment, but that risk is never alluded to in the main section of sales pitches or marketing campaigns. It is usually found at the very end, and often in a smaller font. We have prepared a guide to risk warnings and disclaimers to briefly explain some things investors can look out for.

1. You will commonly see phrases like Market value can go down or fund values can fall. While this seems to be an honest declaration that there is a level of risk, it is too vague to be a real risk warning.

Firstly, these phrases are suggesting that while values can fall, it is unlikely they will do so. Secondly, they do not give any indication of just how much of a fall is possible. As an investor, you should try to establish just how much of the value can be wiped out (it may well be 100%), and devise your strategy with that in mind.

2. Quite often, the risks and disclaimers section will use jargon that the average person will have difficulty understanding. It is also common for the section to advise non-experts to seek professional help from an advisor. If you see this type of disclaimer, it is an indication that the investment vehicle is complicated somehow. If you do not understand the nature of the risk, you might want to reconsider your investment.

3. Another common disclaimer suggests that the investment may not be suitable for all investors. This is also quite vague, as it does not spell out for whom the investment is, or is not, likely to be suitable. Nor does it explain why the investment may not be suitable for some people. If you see this, you will need to find out from the provider what the suitability issue is.

4. It is not uncommon to see sales pitches or marketing material promise tremendous profits for little or no effort. The pitch details often include images of graphs or even of profit and loss accounts that bear out the message in the promotion. In the risks section, you may find revelations that will shock you. For example, you may find that the figures quoted in the sales pitch were from simulated trading. The problem here is that simulated trading figures are rarely the same as those for actual trades. There is no emotional pressure or stress, and no real risk involved, in simulated trading.

Having a guide to risk warnings and disclaimers like this will hopefully open the eyes of the unwary to the way in which this section can tell only part of the story. When you read the risk section, try to grasp the real meaning of what is being said, and try to get more concrete answers when risks or disclaimers are vague.