Before you decide to invest, it is very important that you ask yourself how comfortable you would be if your investment lost some value especially in the short-term. Investing is usually for the medium to long-term (typically, 5-7 years or more) to give investments time to grow in value. However, even long-term investing involves risk as values will fluctuate over time and most investments do not provide a guaranteed level of return or a promise that you will not lose money.
In general, the greater the potential return you want from your savings and investments, the greater the risk you have to take. It is important to talk to a financial advisor about the level of risk you are prepared to accept and what it will mean to the returns you can expect. This should then influence the type of funds that you invest in – funds that suit your appetite for investment risk.
Most investments involve an element of risk:
- Return Risk – the risk that your investment may not achieve the return expected
- Capital Risk – the risk that you could lose some or perhaps all of the original money that you had invested
Risk can vary from fund to fund and it is very important, before you make any investment decision, that you understand all the risks associated with any fund. This will be key to picking the fund that best suits your needs.
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