Three levers to manage your risk when you invest
Risk is inherent to investing, but it doesn't have to be your enemy. When it comes to risk, there are three things to keep in mind: diversification, risk profile and time. Read on to learn more!
No matter which asset class you like best, risk is always involved. Investing is all about finding a balance between risk and return. Usually, riskier investments will have higher returns, but this pattern is not always set in stone. Each asset class (and each category within that asset class) will have a different level of risk.
There are three things to consider when you want to manage risk in your portfolio: diversification, risk profile and time.
1. Diversification
Having a diversified investment portfolio means you've invested in each of the main asset classes - cash, bonds, property and equity. By not putting all your eggs in one basket, you decrease the overall risk of your investments. For example, a great way to easily diversify your investments is to ask your financial adviser to help you open a balanced unit trust.
2. Your risk profile
Understanding your investment risk profile can help you become a better investor. Are you a risk taker, are you cautious, or are you somewhere in between? Knowing the answers to these kinds of questions can help you work out what your risk profile is and how to build an investment portfolio that you feel good about.
3. Time
Your timeline is essential to working out how many risks you can afford to take. If you're a younger investor, you might have more time to recover from risky investment moves than someone who is almost ready to retire. Your timeline could be centred around something other than retirement, too, like saving up for your children's education. Whatever it is you're saving for, it's important to realise that time can be your biggest helper when it comes to investing.
Investing holds the promise of great growth and excitement, even though it carries some unpredictability that may affect your financial decisions. To navigate this, stay in regular communication with your financial adviser to discuss and optimise your portfolio. Being proactive in identifying issues early empowers you to take swift action and propel yourself towards financial success.
This document is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life Investment Services Pty (Ltd): Registration number 2007/005969/07, branded as Discovery Invest, is an authorised financial services provider. Product rules, terms and conditions apply.
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