4 Ways to manage investment risk

There are stable ways to invest and strategies that you can incorporate to make the journey towards achieving your dreams calmer.

Understanding what risk is, what influences it and how it can be minimised could help you decide whether it’s the right choice for you and what amount of risk you’re comfortable with, which will make you more confident in investing and building towards your dreams.

Understanding investment risk

Investment risk is the possibility that what you get out might be less than you put in or that your money didn’t grow as expected.

That’s why it’s important to not only understand the risks of any investment but also tailor them to your circumstances and goals.

How risky is an investment?

Investments are divided into categories based on the type of investment it is. These are called asset classes, and each has its own amount of associated risk but also range in potential returns. For example:

• Cash/money markets are lower risk asset classes because your money’s growth isn’t exposed to too much market fluctuation.  
• Fixed-interest accounts are low risk, but you don’t have the same access/liquidity benefits as you would have with cash.
• Property is also considered lower risk as it’s a fixed asset that can’t just ‘go away’, but generally, it has to be held long term to benefit, and you’re still at the mercy of market and value changes.
• Shares and equities are the highest risk because they are exposed to market volatility, but the potential returns are also much higher.

Ways to manage investment risk

You can’t eliminate risk completely, but you can spread your risk and thereby lessen the impact it has.

• Each investor has their own risk profile (from age to lifestyle, how willing they are to take on risks and more), and the type of investing should match their appetite for risk so that they know what they’re in for and can make an informed decision.
• You can adjust your risk exposure and tolerance with a longer time horizon as higher risk investments will have more time to recover from any potential losses. Similarly, a more conservative approach would require a longer time to grow and protect wealth.
• The more time you have, the more risk you can afford. The less time you have, a less risky approach should be considered.
• Diversify your investments, which means putting your money in a range of investments so that if you experience losses, it’s only to a portion of your money and it can be balanced out by gains in other investments.

Final thoughts: Determining the level of risk and the type of investments you go for is a personal decision based on a variety of factors, but in the end, you need to understand and be comfortable with all the risks involved.

_{Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s).}

_{Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.}