Investment Fundamentals Part 1
Risk vs return
Whilst your investment objective is to maximise return, this is always subject to risk and there is a chance you could lose money or not make as much as you expected. Investment risk can be due to factors such as inflation, taxation, economic downturns or a drop in a particular market.
As a general rule, the larger the potential investment return, the higher the investment risk and the longer you need to remain invested to reduce that risk. The risk involved with an investment can be managed by matching it appropriately with the length of time you have available to invest and your tolerance towards volatility or fluctuations in returns.
An alternative option to manage or reduce investment risk is diversification. This strategy involves investing your money across a range of different investments. The exact mix you choose will depend on:
- your financial objectives
- the amount of time you have available to invest
- your personal tolerance for risk
Owning a diverse range of investments can help you achieve smoother, more consistent investment returns and the more you diversify, the more you can reduce your risk. For example, you could invest in:
- different asset classes (cash, fixed interest, property, shares)
- more than one investment within each type (invest in several different industries and companies when investing in shares)
- more than one type of fund, and more than one fund manager, when investing in managed funds
- inside and outside of superannuation
If you would like to know more about risk vs return or diversification, talk to a Roberts & Morrow Financial Services adviser. They can give you more detailed information on the best approach for your situation.
General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.