THE LARGER THE GAIN, THE LARGER THE RISK
For those in the southern parts of South Africa, there are rainy days ahead. Easter normally signposts the temperature drop and increased saturation in the air. Rain begins to fall, animals slow down and all too often our waistlines begin to explore the other side of the belt buckle…
Rainy days are ahead. We’ve heard it plenty of times, but are you prepared? Not for the cold, but for the financial rainy days when you need to pull on extra resources to cover costs and make ends meet. It's easy to avoid thinking about the rain when the sun is shining. But the rainy days will come.
Last week when we spoke about building investment portfolios, we spoke on investment portfolio knowledge. Today I want to talk about the second key consideration when planning your investment opportunities: risk.
Be Aware of Investment Risk
Risk is never comfortable, but it’s a reality. You cannot begin to design an investment portfolio if you aren’t read to take on risk. Therefore, one important aspect of this journey is finding out how comfortable you are with risk – the chance you may lose some or all of your money.
Your investment risk profile plays a large part in determining how you go about building your investment portfolio.
An investment portfolio will typically contain a mix of assets based on your investment needs and your risk profile. If you have an aggressive risk profile, you will have a larger percentage of high-risk assets in your portfolio. If you are more concerned with stability, your investment portfolio will contain low risk assets.
For investors who need to access funds in the near future and have a low risk threshold.
For investors who are looking for some growth but are mostly concerned about protecting their investments.
For investors who are looking for good long-term returns without large ups-and-downs in the short-term.
For investors who are prepared to take more risk in exchange for potentially higher earnings on their investments over the longer term. Dynamic investors are comfortable with volatility and the possibility of negative returns.
For investors who are willing to take more risk in search of greater returns. Aggressive investors are comfortable with volatility and with the possibility of negative returns and aim to invest over a long period.