Balancing risk and return When it comes to investing, there is generally…
Balancing risk and return
When it comes to investing, there is generally a trade off between risk and return. High potential returns usually come with greater volatility and higher risks. Shares are a classic example of a high risk-high return investment that can provide less stable returns. A bank account is a good example of a low risk investment that offers lower, but stable returns.
Risk is inevitable when investing, but there are ways to manage it. Comfort with risk differs between individuals, circumstances and over time.
Understanding your risk profile
To be successful in investing, you must understand your tolerance or appetite for risk and structure your investments accordingly. Time is your friend – longer time frames can work to minimise short term volatility. While your investments may experience short term fluctuations, over a longer time frame, your investment performance will generally show a consistent trend. longer periods may also give your investments time to gain back any losses.
Diversification spreads risk
Diversification involves spreading your investment portfolio across and within different asset classes, industries and geographic regions. Applying the principle of diversification to your investments mitigates risk by reducing the impact of economic poor performance in one area.
Investing always carries an element of risk regardless of how well you manage it. We can work with you to ensure that your approach to investing is appropriate to your situation, goals and tolerance for risk.
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