General investing risks
The value of the investments in your SIPP, ISA, Dealing account or Junior ISA, and the income you get from them, will go down as well as up and you may not get back the whole amount that you invested.
As these accounts are ‘execution–only’, it is important that you review your investments regularly so that you know how they are performing and make any changes you think are needed. You should remember that past performance is not an indication of future performance and stock market investments may need to be held for the medium to long term (five to seven years).
If the value of your account is small and/or you deal frequently in small amounts, dealing costs may be disproportionately high and the value of your investment may be eroded.
You can deal in a range of investments. Some investments carry a higher degree of risk than others.
- Smaller companies, the price of which can be more volatile and there may be a large difference between the buying and selling prices. Some smaller companies are quoted on AIM.
- Overseas investments, which may carry an exchange rate risk and may be based in less well regulated jurisdictions and
- Warrants and other highly geared investments, the prices of which can be extremely volatile
Bonds may not be suitable for all investors and neither the income nor capital is guaranteed.
If you decide to invest in bonds, you should be aware that when interest rates fall, the price of bonds tends to rise. However, when interest rates rise, the price of fixed interest investments (bonds) tends to fall.
Low coupon bonds are more sensitive to interest rate changes than high coupon bonds.
Venture Capital Trusts
Venture Capital Trusts are intended to encourage investment in smaller, early stage companies and so are higher risk investments. Some VCTs may be lower risk than others but, as a whole, they are likely to carry higher risks than investing in more established companies listed on stock markets.
The Alternative Investment Market (AIM)
This is a market designed primarily for emerging or smaller companies. These shares carry a higher degree of risk of losing money than other UK shares for a number of reasons:
- The rules of this market are less demanding than those of the official List of the London Stock Exchange
- There is usually a wider spread between the buying and selling price of these shares and the shares may lack liquidity.
- It may also be difficult to obtain reliable information about their value or the extent of the risks to which they are exposed.
AIM stocks tend to be volatile high-risk / high-reward investments and are intended for investors with an appropriate level of equity trading knowledge and experience.