High and Low Risk Investments – Risk Management

When looking at the different types of investments to invest your money in, it’s important to understand the risks associated with each. Investment risk generally relates to the possibility of losing your money, either in the short or long term.

By way of example, the type of factors to take into account in relation to risk are:

• The risk of falling values ​​in the short term.
• The risk of falling values ​​in the long term.
• The risk of the supplier going out of business.
• The risk of earning less than other types of assets.
• The risk of choosing the wrong investment account, plan or fund.

These give an idea of ​​just some of the considerations to take into account before making an investment, although the above is not an exhaustive list.

In successfully managing risk and choosing the investments that are right for you, the most important element of investing successfully is realizing that investments must be personal to you.

The way to do this is to manage the two main elements of risk. They are:

• The risk of making inappropriate investments for your needs.
• The risk of making inappropriate investments for your attitude towards risk.

Taking steps to avoid the former will ensure that you have a well-structured portfolio. That is, having put some money into a cash reserve, short-term money, and long-term investments. This will mean that you have some cash to fall back on in times of need, some money saved for short-term expenses, and some surplus assets invested for the future. Once this is done, you can be secure in the knowledge that your ongoing financial needs are well taken care of.

Taking steps to manage the latter will allow you to build a well-balanced long-term portfolio that is in keeping with your own personal attitudes. Once you’ve assessed what type of investor you are and whether you would prefer mainly lower-risk or mainly higher-risk assets, you can begin to choose which individual investments would be suitable. At this point the above list which relates to the risks associated with individual investments comes into play.

For more information and investment advice, contact a financial advisor who can help you navigate through the options available to you.

Ultimately, most people will suit a well-balanced mix of low-, medium-, and high-risk investments. However, the extent to which you invest in these risk levels will depend on personal taste, risk appetite and your own financial circumstances, ie whether you can afford the risks.