Risk Policy
Risk Disclaimer
We are not in a situation to guarantee returns or money back if something happens out of our control. Investment involves risk and we do not offer financial advice. We strongly suggest to speak to a financial advisor before you decide to invest with us.
Risk and what it means to you:
It’s important when you make a financial plan or an investment, to have an understanding of investment risk.
Many people, when they hear ‘risk’ automatically think about the possibility of being defrauded or not receiving all their money back. This is known as ‘capital’ risk and reflects the ability to lose part or all of an investment, but it isn’t the only type.
Other types of risk involve uncertain and unpredictable events such as geopolitical tensions and economic policies when making an investment decision. With this in mind, it can be difficult to say with any certainty what you’ll get back when you decide to liquidate your assets into cash at any time in the future. The prices can fluctuate for shares, there can be interest rate variability and inflation is a risk too. Understanding risk helps you manage your own attitude and emotions towards it. It will also help you to make better investment decisions.
Investment Risk
Investment risk is defined as the volatility associated with returns on investment and is indicative of the potential for both losing and making money. So, whilst the concept of risk may sound negative and you might associate it with loss, it can also mean that returns are unexpectedly high.
The nature of investing means that is impossible for an investor to know exactly what level of return they will make. This is what risk is, it is the fact that you don’t know for certain how much your money will appreciate or depreciate at a given point in time. Different investments carry different levels of risk.
Levels of Risk
When putting capital into a higher-risk investment, you can expect to have a more volatile journey. However, a high-risk investment may also give stronger returns in the long term as the effects of risk diminish over time. This means that individuals who desire and aim for a significant increase in the value of their investments are more likely to opt for high-risk investments. They are likely to accept that their investment decisions could result in a fall in valuation. Similarly, those who can invest for a longer period are able to accept higher levels of volatility along the way. Conversely of course, if your time horizon is short, it’s wise not to take too much risk.
Low-risk investments, like Government bonds, have a lower return potential but are generally more steady. Every investment, however, comes with some sort of risk, and no single asset class can be depended upon to produce consistent returns in all conditions.
Compared with other high-risk examples, our investment instrument is focused on a US Index. We are focusing on one instrument that represents a basket of companies. This instrument like many other instruments has an element of risk. However, the risk in this case is dispersed. In the case of one company, if something happens the share price/ equity of that company can drop significantly. However, in our case, the basket is formed by some of the most stable and strong companies in the US. The basket is a calculation for the average evolution of all the companies, hence the risk is reduced.
Types of Risk:
As well as the different levels of volatility investors will encounter, there are also a number of different types of risk that it is important to know about when investing.
Interest rate risk is the potential impact on an individual from a change in interest rate levels and can lead to a reduction in the value of an investment. Interest rate movements can also affect bond price movements.
Capital risk comes into play given the fact that the higher the investment returns an individual wishes to receive, the higher risks they must be willing to take. However, this also means you run the risk of your capital falling significantly. With start-up companies for example, some may experience spectacular growth, but others may fail completely. This type of risk can be overcome by diversification – not putting all your eggs in one basket!
Performance risk relates to the difference in performance between investment funds with similar objectives, due to the differing selection of assets by each one. Funds that have a high-performance objective will often encounter higher levels of volatility than those with a more traditional investment portfolio. They might diversify less and this alone may cause additional volatility.
Currency risk. You might invest using a currency that is devaluing. Profits would be reduced in this case.
Market risk is the risk of loss in the value of financial instruments due to changes in market conditions. Categories of Adelton’s market risk include equity position risk foreign exchange risk and interest rate risk.
Inflation risk is relevant for those who leave a sum of money in a cash savings account. Whilst the amount of money they have won’t decrease, their buying power might, if the rate of inflation is higher than the interest rate received. The Bank of England currently targets 2% inflation.
How can you affect risk.
Whilst much of the volatility of the markets cannot be predicted, how you act as an investor can influence risk.
If you leave your money in cash and do nothing, you risk inflation eating away at the value of your wealth. Those who take a little risk, but not enough, may come up against a shortfall – the risk of failing to meet a long-term investment goal. At the other end of the scale, investing too frequently and constantly acting on the news of the day, can lead to significant mistakes being made. Being patient, buying, and then holding for the long- term tends to work well. It also minimizes the unavoidable transaction costs, the costs of buying and selling.
Those with a high-risk portfolio are likely to experience drops in the value of their investments from time to time, but to reap the long-term rewards, it is vital that they hold their nerve. Some people will be happy to absorb these risks in exchange for the likelihood of higher returns, whereas others would be very unsettled by the news of their value falling.
Furthermore, if you’re the sort of person who is cut out for high-risk investing, you’re likely to be disappointed with a low-risk portfolio that doesn’t give the opportunity to deliver the returns you want. How accepting you are of higher risks is not just down to your character; the source of the money you are planning to invest can be another factor. For example, if your investment is funded by your life savings, you might be more protective of this money than if it came from a windfall you didn’t expect to receive in the first place. Keeping appropriate levels of cash in reserve will prevent you from having to cut short a long-term investment plan and may also allow you to feel more comfortable about the volatility of your longer-term investments.
Risk mitigation.
Market risk and Market volatility. At times during geopolitical events, economic events or outcomes, or unexpected events decisions, the price can have a big shift. These sudden big moves can be hundreds and thousands of pips. We are reducing this risk by only trading during certain times of the day. each trade open in the day is closed by the end of the day. No overnight/weekend risk. These are likely times for such events known as Black Swans to happen.
As an example, there was a Swiss Franc vs euro drop from 1.2000 to 1.0000 in 2015. In such cases even if we put stop losses in place they might not get filled and the move can be so big (thousands of pips) that the account can literally go to zero and even minus.
Low volatility market conditions. Volatility is the price movement from one point to another. Our strategy is optimal for the average to high daily range. If there is a low range, in other words, the price doesn’t move, then the profits might be lower for those periods of time.
Capital risk - Broker risk. We have a complex money management system with three exit strategies incorporated. this means a tight stop loss in place. In the event of a sudden big move, there is always a stop loss at a maximum of 200 points. There might be unfortunate where our stop losses might not be filled by the broker we are using. Even if we use a very famous broker, supporting one formula team, this risk is existent. We are not responsible for any such losses. The stop losses are not guaranteed by our broker. Also if the broker goes into liquidation we are not liable or responsible for such losses.
How is your money held?
Each customer has a segregated account with the same broker. It's a well-known broker.
Contact information:
If you would like to contact us to understand more about this Policy or wish to contact us concerning any matter relating to individual rights and your Personal Information, you may send an email to info@adelton.co.uk