investment risk and return

Risk and return go hand in hand

 Perhaps the most important thing to remember about investing is that risk and reward are closely linked. You can’t have one without the other. The lower the risk, the lower the potential returns. The higher the risk, the higher the potential returns – although what you can expect and what you actually get may differ.

If you’d rather prioritise protecting the value of your money, you’ll have to sacrifice the prospect of greater returns. Finding the balance between the highest possible return and lowest possible risk will depend on your attitude to risk and how long you can invest for.

Managing Risk

 While investment risk can’t be eliminated, it can certainly be managed.

The saying ‘don’t put all your eggs in one basket’ applies perfectly to investments. Instead, you could consider putting your money in a range of investments. That way if one loses money, it could be balanced out by your other investments. This is known as diversification and it can be an effective method for spreading your risk.

Determine what your risk tolerance is to build your investment strategy.

The younger you are the more risk you can take and the older you are the less you risk you can take. Time in the market will allow you to recover your losses.