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Ten investing truths
Don't avoid or ignore risk - understand it. Then put it to work for you.
It's human nature to want the highest return possible with the lowest possible risk. But it is very rare to have both.
All investing involves a trade-off between risk and return. Generally, the higher the risk, the higher the potential long-term return. But the higher the potential for short-term gain, the higher the potential for short-term loss.
How to manage risk and put it to work
Here's a check-list of the major risks and some tips on how to deal with them.
You'll see that risk management includes investment strategies that will be very familiar: diversify, seek advice and leave investing to the experts.
And don't forget that you can reduce risk by investing over the long-term.
| Risk | Managing the risk | |
|---|---|---|
| Company risk The external and internal factors that can cause a company's share price to rise or fall rapidly. |
Diversify your portfolio so no one company has a major negative effect. | Leave it to the experts who have the time, resources and specialists skills to do a better job than most individuals. |
| Market risk The risk that an entire market will fall because of economic or political changes that unsettle investors. |
Diversify your asset allocation - different asset types rarely follow each other up OR down. | |
| Currency risk The risk that changes in exchange rates may affect your return from investments in overseas shares or fixed interest securities. |
Hedge your investment using sophisticated investment products to protect against the effect of currency movements. | Diversify by spreading your investments in Australian as well as overseas markets. |
| Manager risk The risk that an investment manager or you, if you invest directly, make poor investment decisions. |
Choose wisely by checking the manager's investment credentials and seeking advice from someone you, trust like your adviser. | Diversify by investing with a number of managers who have different investment styles. |
Your attitude to riskEveryone feels differently about risk and your own attitude to risk should be the main driver of your investment decisions. You need investments that balance your need to sleep at night with the ability to help you achieve your financial goals. What's your risk profile? Use our online risk profiler to help you understand your attitude to risk, or call us on 132 135 for a paper copy. Please note that a risk profiler is not a substitute for professional advice and does not take account of your individual investment objectives, financial situation or particular needs - all of which should be considered before making any investment decision. |
Key to successful investing  Take time to think through these investing truths. Have our Investing Truths booklet: |