Following on from last week’s column on understanding risk in your investments, we had several questions which I’ll cover. Many readers believe their investments are automatically protected and managed to avoid risk, but this isn’t always true.
Let’s take a simple example of diversification of risk in your investments such as your ISA or pension. We know from previous columns that the return on the best pension versus the worst pension over a 10-year period was 10 times the latter. This occurs by selecting the best funds and stocks to achieve the best returns but also ensuring you are protected by shocks to the system.
Many funds cannot do that as they do not invest, nor do they have access to, the ability to properly diversify.
