All investments carry some level of risk. Understanding the different types of investment risk and your own tolerance for it is crucial for making sound investment decisions. A financial planner can help you navigate this complex area and build a portfolio that aligns with your goals and comfort level.

Communicating risks is a key element of providing financial advice. A financial planner has an ethical and legal obligation to ensure you are aware of all relevant risks before you invest.

What is Investment Risk?

Investment risk is the possibility that an investment will not produce the expected benefits or that you could lose some or all of your initial investment. It's important to remember that higher potential returns usually come with higher risks.

Types of Investment Risk

There are many types of investment risk to consider, including:

• Market Risk: The risk of investments declining in value because of economic developments or other events that affect the entire market.

• Interest Rate Risk: The risk that changes in interest rates will affect the value of your investments.

• Inflation Risk: The risk that the purchasing power of your investment will decrease because returns do not keep up with price increases.

• Liquidity Risk: The risk that you cannot easily sell your investment for cash when you need to.

• Currency Risk: If you invest overseas, fluctuations in exchange rates can affect your returns.

• Legislative Risk: The risk that changes in laws, such as tax laws, will adversely affect your investments.

Assessing Your Risk Tolerance

Your personal tolerance for risk is a key factor in determining the right investment strategy for you. A financial planner will help you assess your risk profile based on factors like your:

• Investment timeframe: How long you have to invest.

• Financial situation: Your income, assets, and liabilities.

• Investment goals: What you are trying to achieve.

• Personal comfort level: How you feel about the possibility of losing money.

By understanding the risks and your own tolerance for them, you and your financial planner can build a diversified investment portfolio that gives you the best chance of achieving your financial goals.

General Advice Warning:

The information provided in these articles are of a general nature only and do not take into account your individual objectives, financial situation, or needs. You should consider whether the information is appropriate for you, having regard to your personal circumstances. Before making any financial decisions, we recommend consulting a licensed financial adviser to assess your specific needs and circumstances.