Every investment has risk.
Risk is the chance that an investment will not be as good as you expected or were promised.
It means that you might not get your money back and you might not get any additional returns (e.g. interest or dividends or capital growth).
A common saying about investment is "the higher the promised return,
the greater the risk". Experienced investors know that exceptions to
this rule are rare, and for most investors it is a good rule to follow.
So how do you make the right connection between investment risk and return?
Deciding on the level of risk that you are comfortable with is an
important part of choosing investments that are right for you.
Everyone has different levels of comfort or discomfort about risk.
It depends on your personality and circumstances. Knowing your risk profile will help you decide what investment risks you are prepared to take. You can assess your risk profile at www.sorted.org.nz
Types of risk
There are many kinds of risk.
Some risks apply to all investments - e.g. if the whole market for
investments falls everyone's investments will fall in value.
Some investments have risks specific to them - e.g. your shares in a timber company would fall in value if the world price for wood falls.
Every investment has its own risk - this is why it is important to find out about the risks of each investment you make.
Some other types of risk are:
This article was provided by the Securities Commission.
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