Risk Profile and Returns

The term risk profile is used to define a person's comfort level and suitability with fluctuations, including potential loss, of their investment and savings dollars.

An individual's risk profile takes into account factors such as:

• How long do you intend to invest your money or when will you need to access some or all of your money?

• How comfortable are you with day-to-day fluctuations in the investment?

• What are your investment goals?

• What is your age?

• What is your surplus income level?

Risk Return Trade-off

The level of risk you are prepared to take is proportionally linked with the potential level of losses or gains you are likely to make.

For example, savings accounts and term deposits will keep your money secure; however, the money you deposit into these accounts will not earn much.

While an investment in fixed interest securities (bonds) may earn a bit more interest, as the risk of the security rises so does the yield. Other investment options such as property and shares have historically produced the great returns over the longer time frames but both have inherent risks of capital losses and volatility over the short term.

Volatility is the unpredictable upward and downward shifts of investment values over a period of time. The greater the volatility the more frequent the shifts.

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