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Understanding and managing the risks

The risk of an investment is measured by the likely fluctuations (that is, rises and falls) in returns (earnings on your investment). In general, the higher the expected returns, the higher the risk associated with the investment.

How long you intend to hold your investment is critical in managing risk:

If you plan to invest your money long term, growth investments such as Australian and international shares and property may be suitable. They have traditionally delivered the highest returns over the long term, but this also usually exposes you to a higher level of risk.
If you are investing for short term goals, a more conservative investment approach might be suitable with more of your money in defensive assets such as fixed interest and cash. They are low risk, as they are less likely to rise and fall in value, however, they generally deliver lower returns over the long term.

Investment fund	Indicative risk level
Secure	Low
Income Plus	Moderate
Growth	Moderate - High
High Growth	High
Australian Share	High
International Share	High
Property	High

The level of investment risk you feel comfortable with is different for everyone. Talk to your financial planner about what investment strategy best suit your personal needs.

Tips on how to survive market ups and downs

Asset classes

Asset classes (types of investment) have different levels of risk and return. Understanding what to expect from the different asset classes will help you decide which investment funds best suit your needs and investment timeframe.

By investing in more than one asset class you can diversify your investments and reduce your risk. Below are the four main groups:

Class	What's included	How returns are generated	Asset type	Risk profile
Shares	Shares or other securities listed on Australian and international stock exchanges.	From dividends and changes in the market price (capital value) of the shares.	Growth	Aggressive
Property	Direct property (e.g. commercial, industrial and retail property) and indirect property (property trusts that own portfolios of real estate).	Rental income and changes over time in the capital value of the property held (either directly or indirectly).	Growth	Aggressive
Fixed Interest	Loans to borrowers such as governments, semi-government corporations and private corporations. In return for the loan, the borrower generally pays a pre-determined rate of interest for an agreed term.	Interest earned on the loans (income), and movements in the capital value of investments caused by movements in interest rates.	Defensive	Conservative
Cash	Bank deposits, cash management trusts and money market investments (e.g. very short term bonds issued by high quality companies or by governments) that can be converted to cash very quickly.	Interest earned (income).	Defensive	Conservative