The risk of investing

How can you mitigate the risk of investing? 

Though risk-free investing is not possible, there are strategies to manage the risk, depending on your risk profile (more on that later). Think of a balanced mix of investments, ranging from asset classes with relatively little risk on average such as government bonds to more risky ones such as real estate and shares (equities). By choosing a good ratio between equities (equity funds), bonds (bond funds), commodity funds, real estate funds and liquidities (cash), you can spread risks and align your investment portfolio with your goals and risk appetite. If you have freely investable assets from one million euros, we are happy to be of service to you. 

What is the importance of paying attention to risk?

Protecting your assets can help keep your financial goals achievable and provide some security for the future. However, investing with as few risks as possible has both advantages and disadvantages, because risk and expected return go hand in hand when investing. The right allocation to asset classes in your portfolio (such as stocks, real estate, bonds et cetera) can help ensure that your assets are not only preserved, but also can grow. If that is your goal, for example to achieve certain financial goals in the future, there are usually greater risks involved than if you mainly strive to preserve your assets. Investing wisely will help keep the value of your investment relatively stable, allowing you to absorb unexpected financial setbacks. And it gives you something else valuable: a relaxed feeling.

Choose a form of investment that suits you

Choosing the right way to invest is also important to achieve your financial goals and to travel the road to them relatively comfortably. At InsingerGilissen, you can choose from two main forms: Investment Advice (you invest on the basis of our advice) and Discretionary Portfolio Management (we invest for you). In some cases, and by exception, we also offer Execution Only (you invest yourself, without our help: we only execute your orders). 

You can hold shares, bonds, trackers, real estate, investment funds, derivatives and structured products in your investment account with InsingerGilissen. Each asset class has its own level of risk and expects (potential) returns. It is important to choose an investment form and asset allocation that matches your personal risk appetite, your financial situation and the period in which you expect results. By selecting a form of investment that suits you, for example Discretionary Portfolio Management, you can invest with confidence and probably better achieve your goals.

Invest periodically

Instead of investing your entire investable capital at once, periodic investing can be a wise choice. For example, by investing a fixed amount monthly, quarterly, or annually, you will gradually build up your portfolio. The advantage of this is that you are less sensitive to strong fluctuations in purchase prices. Periodic investing ensures that you enter the market at different times, so that your purchase price is the weighted average of all your purchase prices. There is also an investment strategy based on it: ‘dollar cost averaging’, also known as ‘the constant dollar plan’. You can read more about this on our webpage on investment strategies.

Historical returns offer no guarantee for the future

While it is tempting to base investment decisions on past returns, this is no guarantee of future results. Market conditions can change rapidly due to economic developments, political events or technological innovations. Investments that have performed well in the past may underperform under new conditions. 
It is therefore important to look beyond historical figures and make a thorough analysis, not only of current and expected market conditions but also of the investment approach with which the returns have been achieved. Was it accompanied by relatively large risks? Was it a coincidentally favorable investment decision or is it based on a disciplined investment process? With a thorough analysis, you avoid blindly relying on past success and make better, more future-oriented investment choices. 

We are happy to take this worry off your hands with our above-mentioned Investment Advice or Discretionary Portfolio Management services. Do you have free investable assets of a million euros or more? Then please leave your details. Then we will be happy to contact you for an introductory meeting. 

Draw up an investment plan and set your goals 

When you start investing with InsingerGilissen, we always start by drawing up a personal investment plan. This is essential for successful investing in the long term. A good plan helps you stay focused on your financial goals, such as pension accrual or increasing your wealth, and provides guidance during fluctuations in the stock markets. 
In an investment plan, we determine how much risk you are willing to take, what investment horizon you have in mind, and how you will diversify your investments. By setting clear goals, such as how much return you want to achieve in the long term, you can work with us to ensure that your investments remain in line with your financial ambitions. Read more information about drawing up a good investment plan on our webpage about investing with our advice.

Different forms of investment returns

When investing, you can earn returns in various ways. This can be done, for example, by receiving interest on short-term loans or bonds, by the dividend that shareholders receive from the companies in which they invest or by the price gain when the market value of an investment increases. Each type of return has its own characteristics and risks and plays a role in the total return on your investments. For example, investments that can generate price gains, such as shares, can also depreciate and yield a negative total return if the decrease in value is greater than the dividend received.  

Mutual funds that pay dividends usually calculate their achieved returns by adding to the price result the dividends paid as having been reinvested in the same fund on the ex-dividend date. Investment websites usually use three types of return: price return (i.e. without counting any dividend), gross total return (price return plus fully reinvested dividends) and net total return (price return plus net reinvested dividends after deduction of withholding tax). 

Interest

Interest is a form of return that you receive when you save or invest in bonds (loans) or other interest-bearing investments such as mortgage bonds. In the case of bonds, this is usually a fixed amount (the 'coupon') per year, which you receive from the issuer of the bond (the government or the company). There are also loans with floating rate notes and inflation-linked (government) bonds whose interest payment and/or repayment is linked to inflation. 

Loans typically offer relatively stable, predictable returns, which makes it attractive to investors seeking lower risk. However, there are also loans from companies that are assessed as slightly less financially sound and therefore carry a higher risk ('high-yield bonds') or are even downright unhealthy, making their loans very risky ('junk bonds'). The risk of default is called the credit risk. If a company can no longer meet its obligations (and so ‘defaults’), not only the price of its shares, but also of its bonds will fall. 

Although fixed income prices tend to have fewer ups and downs than equities, their price development does depend on market conditions, the economic outlook, interest rate developments and central bank policy rates. When interest rates rise, the bond prices fall because a higher interest rate is paid on newly issued bonds. This risk is called the interest rate risk. Nevertheless, many long-term investors who want to invest with little risk like to invest in bonds from reliable debtors (like sovereign issuers). Because despite any interim price decreases due to interest rate developments, the bond will always be repaid in full at the end of the term under normal circumstances. The price of a bond therefore always creeps towards the end of the term to the ‘nominal’ (the repayment) value of the loan. 

Dividend

Dividend is a profit distribution from companies to their shareholders, in return for making capital available. This can be a fairly constant dividend payment, as in the case of shares of companies with a stable profit pattern and dividend policy - or variable: depending on the quarterly or annual profit of the company. Dividends offer investors a way to benefit directly from a company's profitability, without having to sell their shares. 

Dividend investing or investing in shares with a relatively high dividend yield, is especially attractive for investors who are looking for income in addition to possible price gains, for example to supplement their income. Dividends can make a significant contribution to the total return. If the dividend is reinvested in the same share, those new shares can also grow in price and thus boost the total return – provided, of course, that the price continues to rise on average. Sometimes companies choose to pay dividends in shares rather than in cash: this is called stock dividend. Then shareholders will receive more of the same shares. 

If a company periodically pays a relatively high dividend, this can have a stabilizing effect on the price development. This can be attractive to investors who prefer investments with less risk. If the stock market falls as a whole, shares with a relatively high and stable dividend yield usually fall less sharply than the broad market. But the other side of the coin is that such stocks tend to rise less sharply when the broad market rises. There are investment funds that focus specifically on these types of stocks. These are called 'high income funds' or 'high dividend funds'. These funds may be attractive to investors who are happy to leave the selection and management of relatively high-dividend paying investments to professionals. The broad diversification offered by these investment funds also contributes to dampening the investment risk. 

Price gain

Price gains occur when the market valuation of an investment, such as a stock or bond price, rises relative to the price at which you bought it. When you sell the investment at a higher price than you bought it, you realise a price gain. This type of return can vary greatly depending on market developments and economic factors, among other factors. Price gains can yield high returns, but investments that can rise sharply usually also involve higher risks. The market value of investments is not guaranteed and can of course also decrease. This means that there is a price loss, and the total return (price gain + income such as dividend or interest) can become negative. 

Responsible investing at InsingerGilissen

Responsible investment is an important starting point at InsingerGilissen: in addition to financial returns, we also strive for social returns. For example through sustainable investing. All our investments comply with the Principles of the United Nations Global Compact. We also exclude certain investments that are harmful to people, the environment or society. In addition to our Discretionary Portfolio Management, we also offer Investment Advice. With the latter, clients regularly receive tailor-made investment advice from our experts, in which we strive not only for financial returns but also for social impact. The shortened version of Quintet Group's Responsible Investment Policy can be found here.