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Loading ...What is Investment Risk?
March 13, 2008 by Josie Kay
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Q. Hi Josie. The Share market has had more ups and downs over the past few months than a yo yo competition….One term I hear a lot of financial commentators and even work mates use is “Investment Risk” What do you mean by investment risk?
Josie’s Answer – Thanks for you Question…another interesting and quite topical at the moment. Investment Risk for most investors means the risk of losing capital.
Losing capital is never pleasant, but risk can only mean not receiving an appropriate level of income, or the risk of not achieving a desired level of growth.
Therefore, with regards to answering your question, it all depends on your time horizon (shares and property at least 7 years ++) and what I call the sleep test, which means how much sleep will you lose at night worry about your money.
If you are a stress head, then stick it in cash where it never goes down, but barely keeps up with inflation (the risk you will end up with very little in retirement).
Otherwise, if you have a 20-30 year time horizon (which most people do when thinking about retirement savings), then investing in Australian and International shares might be appropriate.
Financial planners sit down and try and find the right match for you by putting together an agreed asset mix (shares, property, fixed interest and cash).
It is normal for property and share markets to go up and down over short time periods, so important to focus on the long term (to pass the sleep test you may need to invest and promise yourself to only look once a year!).
Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs.
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