When we talk about "Risk" most people immediately think about the risk of "loosing their money".
Very few financial planners will deliberately invest their client's money where there is a high chance of them loosing it all.
However, funds and investments can, and do, go up and down in value
So in financial planning we talk more about "volatility". It is important that investors, and potential investors, fully understand what volatility means and how it works as it is a fundamental force that can work to their advantage.
When asked, most people will describe themselves as; a low risk or risk adverse investor, or a balanced or medium risk investor, or even as a high risk or aggressive investor.
Also, most people consider themselves as having just "one" risk profile
Whether one is a low, medium or high risk investor actually has less to do with your own perception of risk, rather than how long that particular investment is for.
1 - 5 Years
5 - 10 Years
15 Years +
If the money is expected to be needed within 1-3 years, it is generally considered too short a time period to commit money to "investments". That is anything that relies on the markets to produce returns, as markets can go down and take a long time to recover. Therefore the home for money for periods of up to 3-4 years has always been on deposit. A low risk approach is best for this money to ensure that it does not loose value dramatically.
If money is not going to be needed for over 5 years, but sometime between 5 and 10 years, one can take a more medium risk approach to investing as the money has time to ride out the ups and downs of the market. This could be saving for school fees, a wedding or the deposit for a holiday home, or a capital purchase.
A medium risk approach can adopted here to best give your money a chance to beat inflation and achieve some capital growth.
This sort of long term time frame is usually planning for retirement or possibly university fees.
Money invested with a long term view such as this can adopt a more aggressive investment strategy as the investor can ride out the ups and downs of the market, with a view of achieving substantial capital gains.
If you would like to learn more Risk and Volatility and how it relates to you personally contact us here.
In order to determine the best solution for you, meet with one of our advisers, who will asses your current situation, or issue that you want addressed, and will construct an effective affordable solution specially tailored to fit your needs.