08 Jun 2020
Risk is the enemy of any financial investment. It keeps us up at night as we worry about how it will affect our nest egg. But risk used in the right capacity has the potential to earn us good returns.
We spread risk by diversifying our portfolio to include multiple asset classes and economic regions.
Without risk there is no reward
Risk levels are based on info collected from many factors such as historic performance of funds, global economics and geo-political events for example.
To use risk wisely, we need to understand how it works. As an investor, each person has unique financial circumstances and needs. A financial adviser will do a risk analysis to see which is the best risk level for you.
Risk generally comes in various levels. They are called different things by different financial companies but have the same meanings.
• Defensive investors tend to target capital preservation. Their investments will typically be deposit-based, but with some exposure to risk assets, in order to provide the potential for maintaining capital at, or above, inflation
• Cautious investors tend to target a modest level of growth via a portfolio of mixed assets. Their portfolios will primarily be invested in fixed interest assets, but also defensive equity and property, to achieve relatively stable long-term returns. In the short-term, they typically expect some volatility.
• Balanced investors (moderate) tend to target longer-term capital growth. Their investments will be mainly in fixed interest, equities and some ‘alternative’ asset classes. They typically expect some volatility in return for the possibility of higher long-term returns.
• Moderate Growth investors (moderate aggressive) tend to target a return using a portfolio with a higher equity content and a wider geographical spread. Their investments will be predominantly in equities, with an exposure to fixed interest and property, in order to provide growth orientated diversification. They typically accept some volatility in return for the possibility of higher long-term returns.
• Growth investors (aggressive/adventurous) tend to target long-term capital growth by adopting a higher risk level. Their investments will typically be equities, but also some ‘alternative’ asset classes, for the purpose of achieving long-term capital appreciation. (taken from the deVere Catalyst app)
Younger investors tend to opt for riskier investments as they have a longer period for their investment to ride out the markets, whilst older investors nearing retirement want to protect their wealth from risk and prefer a lower risk investment option.
When was the last time you reviewed your risk level? Your financial circumstances may have changed since then.
Fortunately, there are experts who study and analyse risk to help us make the right investment choices to build our wealth. Chat to your deVere Acuma adviser to do a risk analysis to suit your individual financial situation. [email protected]
Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere Acuma adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above