Investment, Returns, and Risk: The Returns you Want and the Returns you Need

Given the volatile times in which we are living, we have spent more time writing and talking about volatility and risk this year. In this article we are going to geek out a bit on the science behind measuring one’s risk attitude and aptitude when it comes to managing money, and offer some practical insights into how you can make your risk profile work for you, as well as a key example of how we can help to add value to you when the world is most uncertain.

Let’s tackle these in reverse order.

The value we provide can be summarised as good advice, consistently applied, over time. When markets are uncertain, and especially when they go through dips, the value we add is often greater. Not because we have the magic answers to deliver returns when the world is falling, I can confirm we do not have a crystal ball. We can add value by guiding you away from actions that can end up very costly. Here is a case in point. In the first half of this year, 2025, it was reported in the Financial Times that  directly related to market panic, investors pulled almost £4 billion pounds out of the UK markets! That is an extraordinary amount of unnecessary losses. For many of these investors, had they stuck to their goals, and if they had had access to good advice, they could have stayed invested and would probably have benefited from the market recovery and been better off. It is a tragedy that didn’t need to happen.  

We know that markets don’t like uncertainty, and that is true for investors, that is, all of us as well. That is why it is hard to maintain a position in the moment. After the event, you will feel vindicated and be proud of your discipline but when markets are falling it is the last thing you want to do. As all our clients know we conduct risk profile assessments with you, our clients, and use the tools from the world leading Oxford Risk, who are behavioural economics experts. Oxford Risk are quoted in the Financial Times article as saying that reactive decision making to market swings cost investors an average of 3 per cent each year in returns. If you compound that, it is a material impact on your future quality of life.

The practical insight that can help you avoid this 3% knee-jerk loss is to take good advice and if you are unsure, or are worried, to contact us at Black Swan Capital at any time. We are constantly assessing global markets and their impacts on our clients’ plans and we can guide you through the roughest economic seas. If you are stressed or overwhelmed by markets and you can’t get to speak with us straight away, we recommend not rushing into any decisions take some time. Reduce the noise, and reflect on your goals.

Now, let’s get geeky on risk. When we assess a client’s risk there is more to it than just applying the results of the assessment.

We need to weigh up a number of sometimes complementary and sometimes conflicting pieces of data. Quoting our friends at Oxford Risk we need to consider the following:

Risk Tolerance

The long-term psychological trait reflecting how much risk an investor is willing to take over their total wealth.

Risk Capacity

Their financial ability to take risk, based on time horizon, reliance on assets, income stability, and liquidity needs.

Behavioural Capacity

Their emotional ability to handle market volatility (proxied by traits such as Composure).

Knowledge & Experience

A more objective gauge of how familiar the investor is with investing, which can constrain risk temporarily.

In addition, we add the client’s goals and objectives. An assessment, individual for each client, needs to be made to determine the relative importance and dominance of sticking to the risk profile that helps the client sleep at night, versus the risk profile they need to achieve their targets. If there is a disparity there, something has to give.

This difference between the risk an investor is comfortable taking on, and the risk they need to take isn’t just hypothetical– it’s the difference between box-ticking and delivering truly customised advice. This is part of our assessment and decision making process that we apply to each and every client. It can sometimes lead to uncomfortable discussions, but always leads to better outcomes. It is another way of demonstrating the value we can add to our clients in the immediate and long terms.

In conclusion there are many factors to consider, when making decisions about your portfolio composition.  Working with professionals, like the team at Black Swan Capital can help you stay on track to your goals, help you to make the difficult decisions, and avoid the actions that many people make every year. That is a tangible value of good financial advice. Speak with us.