The way to help balance your potential risks is to buy more than one company. That way, if one of your choices does suffer problems, then any gains from another company or companies in your portfolio can help to mitigate the loss.
For smaller investors, diversification can be achieved by investing money in a fund. A fund provides two benefits:
you get access to lots of companies within one wrapper, for a fraction of the cost of having to buy shares in them directly;
the selection decisions and management of companies held within it is done for you, by a professional fund manager.
There are over 2,000 equity funds available to investors in the UK. These cover a whole range of different investment areas, from UK only, blue chip companies to international and country specific funds. There are even funds covering high risk areas such as emerging markets and start up companies – if your attitude to risk is such that you would be happy with the higher level of volatility the latter examples experience.
Past performance is no guide to the future. The value of investments can go down as well as up and you may get back less than you invested.
When investing internationally changes in currency exchange rates may affect the value of an investment. Smaller companies and emerging markets carry higher level of risk than larger, more established companies and markets. Consequently, the suitability of any particular stock market investment depends on your personal circumstances and your attitude to risk.
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