Assessing investment risk and return
All investing involves a trade off between risk and return. Risk goes with the investment territory. So rather than avoid risk, it makes better sense to understand it.
What is investment risk?
Investment risk is the risk that you might have to sell at a time when the investment is worth less than you paid for it. The more volatile an investment is, the more your returns fluctuate from month to month or year to year.
Tips for managing risk
- Generally the higher the return, the higher the risk
- The higher the potential return, the higher the potential loss
- Negative returns are possible for most investment types
- Understand the risks involved
- Be comfortable with the level of risk
- Don't take unnecessary risk.
Your attitude to risk
The most important element of the risk/return equation is you. Your attitude to risk should be the main driver of your investment decisions. You need investments that allow you to sleep soundly at night but work hard towards achieving your financial goals.
The BT risk profiler gives you an insight about how people with certain risk profiles may choose to allocate their available funds for investment among the major asset classes.
