Invest

Now that your financial plan and suitable protection is in place, it is time to look towards wealth creation through investment.

All investments contain an element of risk and it is important for investors to have an understanding and awareness of the risks associated with any investment held or recommended. Risk can be defined as the potential for an investment to achieve a return lower than that which was expected at the time of investing. This ‘unexpected return’ can be due to numerous variables such as market changes, adverse economic conditions or specific risks.

Past investment results should not be relied upon as a guide to future performance.

The level of risk that investors are comfortable with can vary greatly. Investors need to have a comprehensive understanding of risk to enable them to make informed decisions in relation to their investment portfolios. Risk to some may mean the possibility of losing a portion of their capital, while for others the main concern may be that assets produce sufficient income on which to live.

Risk and uncertainty cannot be eliminated, however risks can be measured and managed within the portfolio. The key is to determine the appropriate level of risk .Taking on greater uncertainty and short-term risk may be necessary to gain the long-term returns needed to achieve stated lifestyle goals and objectives.

Risk and Return

The major asset classes (cash, fixed interest, shares and property) all have unique risk profiles based on their level of price volatility or instability. For example, cash and fixed interest investments are less exposed to market price fluctuations than investments in shares or property and as such have a lower risk profile. It is important to understand that in general, the more volatile an investment is, the higher the possible returns will be from that investment. Investors will generally be more comfortable with a higher level of risk if the expected return is proportionately higher than that of an investment with a low level of volatility.

Risk and return are closely related. Generally, the higher the degree of risk associated with an investment, the higher the return required by investors for acceptance of the risk. Low risk investments, such as cash deposits, offer relatively low returns as a reflection of their greater security, and are better suited to conservative investors. This is called the risk/return trade-off, and is used as a guide to selecting the appropriate asset allocation for a portfolio.

Any investment decision means adopting a risk of some sort.

Click here to see the impact of Major Events on the Share Market 1994 – 2021.

Click here to see the returns earned by different asset classes from 2001 to 2020.