Risk is central to investing. You take a level of risk with the aim of generating a return on every investment.
When your investments are spread across different markets around the world that risk can include the impact of global politics.
How Much Risk Are You Willing to Take?
Every type of investment involves risk. Because the value of the investment can go down as well as up and you may not get back as much as you put in.
When you make investments you have to weigh up how much risk you’re happy to take against the potential returns you may receive. That’s why financial advisors ask you about your appetite for risk. This allows advisors to choose investments that align with your risk appetite.
The Risk of Global Investments
As your investment portfolio grows, it becomes even more important to avoid putting all your investment eggs in one financial basket.
This means diversifying your investments into different assets, sectors and geographies. With a portfolio like this, you may have investments in different parts of the world. Places you may never have visited or even know much about.
Whilst this spreads your risk across different types of investments, there is still risk contained with each market. So it’s important to develop your knowledge because political events and issues in other countries and continents could affect the value of your investments.
How International Politics Can Impact Financial Markets
Financial markets are affected by a variety of factors outside your control. In the context of global investments, you should be aware of how the risk of political changes or instability in a country can affect financial markets.
Markets are impacted by government decisions in these countries. These can include changes to taxes, laws, regulations and currency valuation. But political instability can occur too with government changes, civil disorder or even military control.
To bring this to life, there have been several examples in recent years of how this can happen.
In 2014, Russia annexed Crimea in Ukraine, which led to emerging European equity funds being heavily impacted by the crisis.
In 2019, US President Trump introduced a series of tariffs on Chinese goods which resulted in companies moving their manufacturing out of China.
In 2020, the lockdowns introduced as a result of Covid-19 resulted in a number of commercial property funds stopping their redemptions because of uncertainty about the valuations of retail and office buildings.
Please Note: The value of the investment can go down as well as up and you may not get back as much as you put in.
If you would like to speak to us about your investments please email [email protected].