Getting the balance right betweenrisk and reward

While the principle of risking capital for higher returns is well established, it is fundamentally important that investors understand the level of risk they are taking

The principle of investors taking a risk with their capital in order to achieve higher returns is perfectly acceptable, even to the FSA. What is fundamentally important for regulator, adviser and client alike, however, is that the level of risk is understood. In other words, investors should have a pretty good idea of how much income they will receive and what will happen to their capital. Broadly speaking, there are two ways investors are paid income: • Genuine, ungeared income in the form of bank deposits, dividends paid from shares, or coupons paid from corporate bonds, or other debt i...