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When considering risk there are two components to discuss; the risks of the investment and the risk appetite of the investor.
Investment Risk when applied to InvestSMART Portfolios mostly refers to potential volatility of returns over time. A common way to categorise this is on the Standard Risk Measure.
Note: Refer to the Product Disclosure Statement for all potential investment risks.
The Standard Risk Measure considers historical returns, usually 20 years, for an asset or portfolio of assets before placing it on a scale from low risk to very high risk.
It will consider the total number of positive and negative returning years, the best and worst returning years and the average return per annum over the time period.
When higher levels of volatility in these metrics exist it indicates a higher level of risk, but generally higher long-term returns and conversely when lower levels of volatility occur it indicates a lower level of risk but generally lower long-term returns.
InvestSMART Growth Portfolio and InvestSMART Ethical Growth Portfolio is considered medium to high risk on the Standard Risk Measure.
InvestSMART High Growth Portfolio is considered high risk on the Standard Risk Measure.
Risk Appetite relates to an investor's willingness to handle risk within their portfolio and it varies based on goals, time horizon, and personal circumstances. It influences the level of risk an investor is comfortable with and willing to take on because all investments will have varying levels of volatility over time.
Understanding both your risk appetite and the risks of your investment are crucial in selecting the appropriate portfolio for your Fundlater Account.
Risk and time have a highly correlated relationship, click here to read more about investment timeframes to help you choose the right portfolio for your goals.