Lessons from the past on spreading risk

Five decades ago, a little-known company was dominating the headlines as the price of its shares propelled northwards, before plummeting back to earth a couple of months later. Mining company Poseidon announced the discovery of new nickel ore reserves in Western Australia just as world nickel prices hit a new high.

Poseidon and Polly Peck – the rise and fall

In the second half of 1969, Poseidon shares had been trading at A$0.80, when all of a sudden, the price climbed week on week as investors pounced. In February 1970, the shares reached A$280.00, before profit-taking ensued and the share price plunged. After nickel prices tailed off, Poseidon nickel ore was regarded low quality and receivership followed in 1974. Twenty years later and a little-known fashion house, Polly Peck, suffered a similar fate. Acquired by new owners in 1980, a number of deals brought such growth that the company’s shares entered the FTSE 100, but ten years later, in 1990, Polly Peck shares were suspended amid fraud allegations.

Tough lessons learnt – diversify your portfolio

With many investors in Polly Peck and Poseidon suffering losses, a painful lesson was learnt about the concentration of risk. As a general principle, investment in individual equities or shares should be spread around, so that if one share price falls heavily it only affects a proportion of your overall portfolio.

For many investors, a good way to achieve a spread of risk is through collective investment schemes with risk profiles aligned to their specific requirements. Taking your objectives and needs into consideration, we can advise on the investment strategies and products most appropriate for you.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.