When it comes to our investments, our tolerance to risk can be defined as the degree to which we are prepared to worry about losing more money than we’ve initially invested. But the exact nature of that worry is interesting, because it changes depending on the length of the investment itself. So, if you had £10,000 to invest today, would you be more worried about not achieving the short term investment goals you set yourself, or more concerned about missing out on the longer term ones? It seems that for most people – just over two thirds according to research by IG and YouGov – not achieving those longer-term financial goals would be the biggest concern. Just 32% said that they worried about any shorter term investment losses.

Investing for the future

Much as we aim to rule out short-term loss, here at Holborn Assets we think this is significant, because it shows that for most of us, investing is a long term consideration. Of course, the further away from the date on which we realise the value of our investments – our retirement for example – the more risks we’re prepared to take with our money, in the hopes of gaining a few higher returns in a shorter time period – but as time goes on, our focus is much more on the long term performance of our investment. But even that willingness to take more risks in the early days is also tempered by most people’s natural caution – the same survey suggested that 61 per cent of UK investors say that they have a low financial risk tolerance, indicating that they generally feel more comfortable with less risky investments over the longer term.

Go short or go long?

So how does this feed into making the right investment choices for you? We’d suggest that taking a long term view on growing your investments is always preferable to chasing short term gains – but we recognise that it’s easy to be persuaded otherwise. The markets, the media – even financial advisers with vested interests – are always keen to create a buzz around certain investments. And it is in listed company’s interests to do so as well – a 2015 report by the experts at the CFA Society VBA Netherlands quoted Tom Sweet, CFO of Dell, as saying that attention is “focused on the ninety-day cycle, on achieving the earnings per share target”. They also quote the Financial Times, who say that there is “an excessive focus on short-term results at the expense of long-term interests”.

Resisting this pressure as an investor isn’t always easy, with companies focusing on short-term profits for their shareholders over the long term sustainability of their businesses. And of course, if you can get in – and then get out – at the right time, short-termism is a strategy that can work for investors.

But once again, we return to your appetite for risk: is the short term gain you’re chasing really worth betting your pension on? Only you can decide.