What are the risks involved with investing?

There is no such thing as a ‘risk free’ investment. Whether it’s shares, property or bonds, there will always be a level of uncertainty about how each investment will perform.

 

As a general rule, the greater the risk you’re prepared to take, the greater the potential return on your investment.

 

Let’s say, for example, you’ve got $2,000 to invest.

 

If you’re uncomfortable with the possibility that your investment won’t perform as expected, you may be better to look at lower risk investments such as a term deposit. This investment locks your money in for a fixed period of time and safeguards the return you’ll get on your money. The risk is minimal but, as a result, the return on your investment is also generally low.

 

Alternatively, if you’re comfortable with higher risk, you may, for example, invest in the share market where the potential for a higher return on your money is greater over the longer term.

 

Everyone’s tolerance to risk is different. When selecting your investment, you need to strike a balance between the level of risk you’re comfortable with and the return you want on your money.

 

A commonly used yardstick to help you determine the level of risk you’re happy to accept is the ‘sleep test’. If you toss and turn at night worrying about the security of your money, chances are you’re not comfortable with the level of risk associated with your investment decisions.

 

With the right advice, you can understand the factors that potentially affect the performance of your investment and be more comfortable with an element of risk in your investment decisions. In reality, this may mean increasing your opportunities for wealth creation.

 

Of course, risk won’t be the only consideration when you make an investment decision. You’ll also need to consider issues such as diversification, accessibility of your money, the tax you pay on your investment, and whether your money will grow at a rate faster than inflation.

 

Investing can be a complex process. If you’d like more information on investing to increase your financial security, call an Insight Investment Services Adviser today or simply click below and we will have an Adviser contact you immediately.

 

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