What is investment risk?

Deposit money in a bank account and there is virtually no risk of your money losing value. Invest your money in shares, however, and the risk of your investment losing value increases.

Generally, investments with low risk also generate a low return. Investing in a bank deposit will probably earn a return of around 2–3% p.a.. Investing in shares however, could generate much higher returns, but there's also much higher risk that they'll drop in value. 

Your attitude to investing risk

We all have different attitudes towards investing risk. Consider how comfortable you are with the possibility of losing money, or that the returns on your investments could fluctuate widely from year to year. This is a personal decision only you can make.

Timeframes

The length of time you are prepared to invest the money for is an important part of understanding your risk profile.

High-risk strategies can offer higher returns and should usually be considered over a long time period. A low-risk option tends to suit investors who have a short investment time frame or are uncomfortable with the volatility of high-growth assets.

How do I balance investment risk and return?

Everyone feels differently about investment risk. If you take out high risk investments only to be consumed by anxiety, you are at the wrong level of risk. You need investments that balance your appetite for risk with the ability to reach your financial goals. Find out where your risk level is so that you can make investment decisions that won't stop you sleeping at night.