Tanner’s Tips – Risk

Tanner’s Tips comprises of a father and daughter team, an unstoppable duo fighting apathy in the world of finance.

Risk doesn’t have to be a negative thing.   There are many different levels of investment risk on the market.

Before you begin, you must first understand your tolerance for risk.   This is basically what level of risk you are prepared to take with your capital.   I’m sure everybody reading loves the idea of high returns, but you may not be able to tolerate the higher risk associated with this.   There are different risk levels to suit everybody, so it is about finding the balance of what is important to you.   Financial stability vs. returns.   Of course lower risk investments are associated with lower returns, and these types of investments can also have a cap on your potential gains.   Going back to what we discussed last week, lower risk funds would tend to be less volatile also, so if dips in the market would give you sleepless nights, it is best to settle for the lower returns of a more stable product.   But of course, it is important to note that all investments experience fluctuations.

However, you do have the possibility of getting the best of both worlds.   As previously discussed here, diversification is key in reducing your overall risk.   Multi asset funds offer participation in a wide variety of assets, i.e. not having all your eggs in one basket.   These types of funds combine lower risk, less volatile assets with potential higher returns from higher risk asset classes.   Many life companies offer these types of funds with risk ratings going from 1-7.   1 being the lower risk end of the scale, and 7 being the higher end.

When assessing your tolerance for risk, it is best to seek help from a professional.   We have specific questionnaires with software designed specifically to gauge your risk appetite.

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Tanner's Tips Risk