Understanding Investment Risk
All investments have some element of risk, but some assets are more likely to fluctuate in value in the short term than others. Markets can experience significant volatility at times, reflected in frequent and sometimes large changes in portfolio values as we have witnessed in the past few years.
How sensitive are you to risk and swings in returns over the long term? And which assets in your portfolio have more exposure to market volatility?
To assess your risk tolerance, financial advisers take into account your beliefs, your age, stage of life and income available for wealth creation. The adviser also notes your short-, medium- and long-term financial goals and commitments. A strategy is then designed to help you meet your goals. The strategy includes investments in different types of asset classes.
The following table outlines the asset classes and their relative levels of risk for the amount of return.
There are five main risk profile categories into which your risk tolerance may be categorised. The following table outlines these profiles and the approximate blends of the asset classes your funds are then exposed to via certain products. We start with the lowest risk (cash) and move to the highest.
If you feel that your portfolio includes investments with which you are no longer comfortable, please come and talk to us and we’ll discuss all of the taxation and revaluation implications that any changes may cause. We can then reconstruct a strategy that is more appropriate for your needs and risk tolerance going forward. Get in touch with us here.