Once you, and at least one other person, have agreed on the overall investment strategy you need to produce a draft of it. The first thing is to settle the level of risk that the club will take.
- Peoples' view of risk is very individual. Some people regard an investment in anything other than a blue chip company with a reliable dividend record as being too high a risk. Others are willing to invest in a start up company with no track record of success.
- Attitude to risk tends to change according to age. Younger investors can afford to take more risk, and conventional wisdom is that they should do so in order to have a chance of serious capital growth. Investors at retirement age, equally sensibly, tend to be more risk-averse and to look for income-producing investments.
- Look at risk in combination with return. If you are looking for short term gain, you will probably choose a higher risk portfolio than if you are looking at the club as a long term savings vehicle.
You can put different types of investment into a list from what you regard as the highest risk to the lowest. Here is an example of such a list:
Investment opportunities in a sensible order of risk from high to low
- Options and warrants
- Shares bought for their recovery potential
- Shares bought for growth potential
- Overseas shares in individual companies
- Investment trusts and unit trusts in overseas companies
- UK companies in the FTSE Mid 250
- UK companies in the FTSE 100
To choose your investment strategy think about a triangle
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