Understand the Risks

If you’re interested in investing on the stock market you need to be aware of the risks involved. It’s important that you do your research before making a financial commitment for the future.

Is investing right for me?

This should be the first question you ask yourself before making any investment decisions. As all investments involve a degree of risk, you should really be thinking about investing for the medium to long-term – to smooth out the ups and downs of the markets. If you can’t make a commitment of 5 years of more, investing may not be appropriate for you.

It may be the case that in the long term your investment could provide a better return than savings, however risk and reward go hand-in-hand and you should be willing to accept this risk before making an investment.


Understanding risk

The value of any investment, and the income from it, can go down as well as up and you may get back less than you originally invested.

When you’re researching stocks, it’s important to understand that the past performance of any investment is no guarantee of how it’ll perform in the future.

Tax laws can change and any tax advantages will depend on your individual circumstances.


Managing risk

One of the ways you can try and manage risk is to diversify – spread your investments across a range of markets, sectors and investment types. You could also try to invest smaller amounts regularly, rather than as a single lump sum – investing regularly over a longer period of time can help smooth the ups and downs of the stock market. 

It is, however, important to remember that nothing’s guaranteed and you could lose some, or all, of your money whatever the level of risk.


Risks

Foreign markets will involve different risks to UK markets. In some cases the risks will be greater.

Culture

Language and cultural differences between the UK and foreign markets may mean that there is a lack of information, or difficulty in obtaining information you may consider important to your trading decisions.

Currency Risks

When trading on foreign markets or in foreign denominated contracts, the potential profit or loss arising from such transactions can be affected by fluctuations in foreign exchange rates.

Economy and Politics

General economic and political factors such as inflation or fluctuations in interest rates within the UK may impact overseas markets. In addition, there may be no correlation between the general economic outlook and market conditions within the UK as compared to foreign markets. These may be less or more favorable.

Emerging Markets

Emerging markets tend to be less developed than the UK model and this can lead to greater volatility in securities pricing. This can mean the value of your investments may quickly change.

Shareholder Rights

As a shareholder who is resident in a different jurisdiction to that of the company you're invested in, you may find that you're excluded from certain shareholder rights and benefits. For example, the ability to participate in corporate events, such as Rights Issues.

This means that you might not receive the same treatment as other shareholders and you could suffer economic losses as a result.

Taxation

Tax laws in other countries are different to those in the UK. In many countries the local tax authorities will withhold an amount of tax which exceeds the rate which would apply in the UK. In particular it's worth remembering that ISAs and SIPPs will only shelter you from UK tax.

The treatment of tax is therefore likely to affect the value of and any returns you might expect from foreign investments.

Trading and Settlement

Trading volumes in foreign markets can be smaller than those in the UK. This can mean that reduced liquidity in overseas markets makes it more difficult to sell shares you have bought. Delays in settlement may also occur.
Risk warning

Please remember that the value of an investment and the income from it can go down as well as up and you may get back less than you invested.

We don't provide advice so if you are in any doubt about making your own investment decisions we recommend you seek advice from a suitably qualified financial adviser.

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