My investment portfolio is currently worth about £250,000. I’ve always taken a cautious level of risk with my investments as I’m not really comfortable with too much volatility. However, I’ve been told that if I want to get anywhere near the current rate of inflation in terms of returns, I need to take a higher level of risk. Should I do that?

Phil Beck of Smith & Pinching responds:

It is true that rising inflation means that lower risk/lower return investments may struggle to keep their value in terms of buying power at the moment. One answer may well be to increase the risk rating of your portfolio in an attempt to secure higher returns. However, it is important that you understand the implications of the investment risk you are taking and that you are comfortable with it.

I would never suggest you adopt a level of investment risk that is going to cause worry or concern. For some people, it is beneficial to take different levels of risk at different stages of life. For example, taking more risk at an earlier age is often suitable, when there are many years of investing to potentially achieve above-inflationary returns. However, someone in later retirement, for example, may feel they wish to be more cautious.

Investing should be a medium to long-term process and you should be looking at the performance of your portfolio over the course of at least five to 10 years. Viewed in that light, potential short-term drops in value may seem less serious and if you can leave your money invested over the long term then you should hopefully achieve good returns.

The level of investment risk you take will depend on your circumstances and the targets you have set for your financial planning. It’s important to keep your investments as well as your risk level under regular review, to ensure they are suitable for you both now and in the future.

I think you need to talk further with your adviser to explore whether there are compromises to be made. You may be able to retain a number of lower-risk investments and add in some that have a higher risk, for example. What is important is that the overall risk rating of the portfolio should be right for you, even if the portfolio contains some investments with higher risk and others with lower risk.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information please visit www.smith-pinching.co.uk