Medium risk investing

Medium risk investing is all about balance. Risk appetite changes over time as we move through different phases of life. Younger investors can afford to take more risk as they have plenty of time to restart their investing journey if they make substantial losses. Older investors tend to prefer low-risk investments , as their priority is capital preservation and steady income, even if it is from lower returns. That leaves the happy medium.

What is medium risk investing?

Medium risk investors aim to create a balanced portfolio which might include higher-risk assets such as shares, alongside lower-risk investment instruments such as bonds and cash.

In practice, a medium risk investor wants to maintain an optimised balance between risk, reward, and long-term returns. This approach offers some stability while still allowing for healthier returns than ‘safe haven’ low risk investing.

A medium-risk investment portfolio will have some exposure to higher-risk stocks and lower-risk bonds. The degree of split can be determined by your risk appetite, individual goals, or the health of the market.

A medium-risk approach aims to strike the perfect balance between returns and time. The aim is to steadily grow wealth above inflation over time using a combination of the right assets and financial products.

Why choose medium-risk investing?

Medium risk investors tend to be established in their careers with enough monthly income to maintain a regular investment schedule. At the same time, they may be starting to consider key life goals such as retirement and seeking a longer-term investment strategy to meet these goals.

How to choose medium-risk investments.

Stocks and shares

A diversified portfolio of stocks and shares, with a focus on big, listed companies, is a great start when it comes to creating a medium-risk investment portfolio. You can gauge the risk level of an individual company by looking at their stock performance over the past five years. If the price of the stock has been extremely up and down, it may indicate a level of past risk that could continue after you buy it.

You can also read analysis and data on individual stocks and shares, including broker notes which dictate whether expert traders advise to ‘sell’, ‘hold’ or ‘buy’ a particular stock. For a medium-risk portfolio, you will probably only want to consider ‘hold’ or ‘buy’ recommendations. That said, be careful of selling stocks too often unless you’re speculating on the short-term price movements. Compounding is a crucial element of investing success, and compounding requires time.

Funds and ETFs

While it is always possible to manually select your stocks and shares investments, investing in funds can offer instant diversification and access to a group of similar stock picks. For instance, if you have identified the electric vehicle industry as an appropriate pick within your medium-risk investment portfolio, you may choose to invest in an exchange-traded fund (ETF) which covers that sector. ETFs mirror index performance and automate your investments by spreading your money across a range of stocks. This automation means that ETF investors don’t have to pay hefty fund manager fees, making them a cost-effective way of achieving a balanced portfolio.

Real Estate

Physical real estate is another option for investors. Historically popular, investing in property allows you to take advantage of rising property prices, leveraging the rental market, or spending money ‘fixing up’ a purchase and reselling it for a profit. You can also take an indirect approach to property investing by adding property-linked stocks and shares to your portfolio, or by funding property development loans via a crowdfunding or peer-to-peer lending platform.

However, real estate purchases are illiquid, so they should ideally be added to a balanced portfolio, rather than making up the bulk of your assets.

Housing has been a historically strong investment, with properties generally appreciating over time. However, the market has been subject to various real estate bubbles that reach unsustainable prices then drop.

While this asset class can sometimes feel like a safer investment because of the physical asset, getting into the housing game is not without its challenges. For one, you require a bigger amount of capital or debt to get started. The costs associated with buying and selling property have to be deducted from any returns and managing tenants isn’t an easy gig. Also ensure you understand the tax implications of property investments before you sign on.

How to assess your medium-risk investments

Consider your time

Think carefully about your timing before making a new investment – ideally you want to invest while prices are at a relatively low and seem likely to go up in the future. A long-term view can help weather volatility or diversify your portfolio.

Stay balanced

Choosing a medium-risk investment allows you to rebalance your risk depending on the split of your portfolio. Regularly reviewing this allows you to tailor your long-term goals and ensures that your portfolio evolves in line with your lifestyle. However, remember each time you sell an investment you interrupt its ability to compound.

Review, review, review

Remember, your risk appetite will change over time, so make sure you are checking in with your investment portfolio on a regular basis – at least every couple of years. Similarly, the world of finance changes, and what may have been considered a medium-risk investment five years ago could now be considered high risk. Avoid any nasty surprises by keeping a close eye on your portfolio so that you can act early if needed.