ABSTRACT
Common issues that undermine long-term financial security are investing too little and investing unwisely. This chapter discusses why individuals tend to make different types of mistakes in investing and how people can avoid these pitfalls. When investors think about 'risk', they usually mean capital risk: the risk that they might lose some of the money they originally invested or gains they have not yet cashed in because of the way that the value of investments can go down as well as up. UK government stocks are considered to have low capital risk because they are issued by the UK government which is very unlikely to default on paying the interest on gilts or the final payment on redemption. Medium-risk equities are generally those that consist of large companies, sometimes called 'blue chips', which are traded on large stock markets in developed economies. Governments often encourage particular types of saving or investing by giving tax incentives.
