Understanding Investment Risk

There are many decisions to consider when making any investment. One of these is how much risk you are prepared to take. This will be determined by a number of different factors. In this guide, we take a look at the different types of investment risk and how it can relate to returns.

Your appetite for risk will depend on your life stage and whether you want to grow your money over the long term or need to draw a regular income. Usually, your age and relative proximity to retirement will determine whether you’re investing for the short term (one to three years), medium term (three to five years) or long term (more than five years).

What to invest your money in is a big decision. To make an informed recommendation, it is important for us to understand your financial circumstances, your investment objectives and expectations, including the level of risk you are prepared to take and that which you can afford to take.

If you want to invest for many years, you may be prepared to take on more risk in your investment portfolio. This means you’ll have time to ride out any short-term fluctuations in investment returns and benefit from the potentially higher returns offered by growth investments such as shares.

As you approach retirement, or when saving for a specific goal such as the purchase of a home, you are less willing to risk losing your money.

This is particularly true when markets are volatile, and the risk of capital loss increases. At this time, you might put a greater emphasis on investing in defensive assets, such as cash and fixed income.