How much risk should I take?
Risk and return
Your portfolio is usually invested in financial markets, and therefore you are exposed to investment risk.
What is investment risk?
Investment risk is the degree to which returns go up and down in value over time. You cannot consider return without risk and, generally, the higher the potential return, the higher the risk.
How can I get higher returns?
In order to achieve higher returns, you must be willing to take on more risk. While shares, property and fixed interest securities historically offer higher long-term returns than cash, they also expose you to higher levels of risk, particularly in the short term. The variability of returns is a risk associated with investment and the assets that offer higher potential returns generally have the highest fluctuations in returns. The assets that have lower risk (and lower potential returns) generally have less pronounced fluctuations in returns.
What if I choose low risk options?
In financial terms, there is also a risk of not having enough assets or money to provide you with the lifestyle you desire in retirement. Therefore, if you try to avoid investment risk altogether, you may have to save more for your retirement.
How much risk should I take on?
Your tolerance to risk is an important factor to consider before making your investment choice. Everyone has a different tolerance to risk, and you need to be comfortable with the level of risk that is associated with the investment option or mix of investment options that you choose.
The risk/return profile of each of our investment options is determined by the percentage allocated to growth assets relative to defensive assets. The greater the proportion of growth assets, the riskier the investment becomes and the greater the potential return in the long-term.