Investment Fundamentals Part 3

Understanding risk and return

The level of risk an investor takes relative to the investment return they expect to receive is sometimes known as the ‘risk to return ratio’.

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.

Managing investment risk

If you invest in just one asset class and its value falls, the value of your investment will drop with it. However, by investing in several asset classes, you spread your risk and can offset underperformance in one asset class with positive performance in another. This could help you achieve smoother, more consistent returns over time. Each asset class has its good and bad times, so while a diversified portfolio will never achieve the top return in any given year, it will never receive the lowest either.

If you would like to know more about risk vs return or diversification, talk to a Roberts & Morrow Financial Services financial 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.

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