Invest
How to balance your investment risk
As returns become harder to come by, more investors are taking on excessive risk, leaving them unnecessarily exposed. Here are four ways to balance your investment risk.

How to balance your investment risk
As returns become harder to come by, more investors are taking on excessive risk, leaving them unnecessarily exposed. Here are four ways to balance your investment risk.

If you’re investing in anything other than the risk-free return of bank deposits and bonds, you’re going to experience some level of volatility. Volatility is the degree by which an asset’s value changes in a given period. The greater the movement, the higher the volatility. In simple terms, volatility equals risk.
As financial planners, we’re often asked if we can recommend a low-risk investment that will make high returns. Unfortunately, such an investment doesn’t exist. However, it’s possible to mitigate risk so that the chance of suffering a loss is reduced. Is there a secret we’re not telling anyone? Not at all. Most of the methods to reduce your risk are quite logical. Below we list our top four.
Method 1 – Understand the time frame
Time is probably the single greatest factor that should come into account when reviewing the risk of an investment. In the short term, an asset’s value can go up and down. But over time, a quality asset will usually go up in value. Consider your personal needs when looking at time frames. If you make investment in the stock market but need your money back in two years, it’s possible you’ll lose money. However, if you can put the money aside for 10 years, you’ve got a much better chance of earning a profit.
Take out: Select investments with an understanding of both the acceptable time frame for the investment and your personal needs.
Method 2 – Research the investment
While it may seem logical to say that you should know what you’re investing in, many people take the plunge into an investment without properly considering all of its facets. This could be due to being overly optimistic, fearful or pressured into a decision. If you understand the investment, you’re going to be able to assess if it’s the right one for your personal situation. Furthermore, you’ll be less likely to panic and sell it at the wrong time.
Take out: Research your investments, ask lots of questions and don’t go ahead with anything unless it makes sense to you.
Method 3 – Diversify your investments
Make sure that you don’t put all your eggs in one basket and spread your money over different asset classes. Different asset types have varying characteristics and behave in different ways. Diversity gives you options if you need to sell to access funds, as usually one of your investments will be doing better than others.
Take out: Invest in a mix of asset classes to minimise losses should you need to sell.
Method 4 – Have a backup plan
Do keep some money aside when investing. You don’t want to be in a position where you have to sell an investment when its value is down because you need the cash. How much money you need to retain is a personal decision only you can make. Consider your risk profile, living costs and lifestyle. Having money aside will enable you to ride the ups and downs a lot easier and will allow you to retain your investments even if you suffer a potentially catastrophic event such as major illness, accident or losing your job.
Take out: Keep a sum of money aside for emergencies.
Investments are never for the short term. They take time and patience to work properly. Investing should be part of your overall financial strategy so that you know what you’re doing, why you’re doing it and what you hope to get out of it.
Brenton Tong, director, Financial Spectrum

Stock market
Beware the reversal of the sharemarket rally, expert says
The companies that offer the greatest risk for investors in 2021 are somewhat ironically many of the same companies that have provided the greatest return to investors in 2020, an expert has warned. ...Read more

Stock market
Is climate change the next big investment theme?
Investors looking to outperform the market are being urged to look at structural growth, with climate change likely to create the biggest investment opportunity since the internet, an industry expert ...Read more

Stock market
All Ords set for new record by February, analyst predicts
The Australian market is likely to reach a new record in the early months of the year, with a win on the health front likely to offset geopolitical issues, an analyst has stated. ...Read more

Stock market
Aussies flock to fixed interest and ETP products for stable returns
Investors seeking stability during the COVID-19 pandemic have turned to fixed interest and cash exchange-traded products, new research has revealed. ...Read more

Stock market
Emerging market equities gain traction in post-pandemic world
Emerging market equities are making a comeback as technology-savvy consumers flock to capitalise on new opportunities that the 2020 pandemic may have made too attractive to ignore. ...Read more

Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more

Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more

Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more

Stock market
Beware the reversal of the sharemarket rally, expert says
The companies that offer the greatest risk for investors in 2021 are somewhat ironically many of the same companies that have provided the greatest return to investors in 2020, an expert has warned. ...Read more

Stock market
Is climate change the next big investment theme?
Investors looking to outperform the market are being urged to look at structural growth, with climate change likely to create the biggest investment opportunity since the internet, an industry expert ...Read more

Stock market
All Ords set for new record by February, analyst predicts
The Australian market is likely to reach a new record in the early months of the year, with a win on the health front likely to offset geopolitical issues, an analyst has stated. ...Read more

Stock market
Aussies flock to fixed interest and ETP products for stable returns
Investors seeking stability during the COVID-19 pandemic have turned to fixed interest and cash exchange-traded products, new research has revealed. ...Read more

Stock market
Emerging market equities gain traction in post-pandemic world
Emerging market equities are making a comeback as technology-savvy consumers flock to capitalise on new opportunities that the 2020 pandemic may have made too attractive to ignore. ...Read more

Stock market
Is it too late to start investing in market index ETFs?
With the Australian market recovering its losses since the pandemic began, nestegg asked an industry expert if it was too late for investors to begin their investing journey. ...Read more

Stock market
Is it time to buy reopening stocks?
Investors are being advised to look into stocks that could benefit from markets reopening, an analyst has stated. ...Read more

Stock market
Stocks to watch in 2021
Easing political uncertainty, new vaccine hopes, central bank’s willingness to do all it takes and more, and new stimulus packages are likely to act as tailwinds for investors, an analyst has said. ...Read more