Investment risk management

Managing your investment risk

There is hardly anything in life that doesn’t involve taking some risk – even getting out of bed in the morning! Many people are fearful of investing because all they focus on is the risk of losing their hard-earned money. Others look for great returns and forget about the risk entirely. As with anything, there has to be a balance.

In the majority of investment structures, risk and return are related. The more risk you take, the more return you can potentially make (and vice versa). But there are ways in which this “risk” can be managed without defaulting to low-return investments.

Here is a handy checklist to keep you focused on maintaining a balance and to minimise your investment risk.

1. Risk and return

To get ahead, your investment returns needs to take account of tax and also stay ahead of inflation. Many low-risk investments such as bank savings accounts often do not achieve that goal. To make any gains, you must take calculated risks.

2. Learn more and be aware

Many investment disappointments come from lack of knowledge. Learn how things work. The more you understand about investing and financial markets, the better you will become at choosing the right investments for you.

You will also be less likely to act blindly on a tip from a family member or friend, without first doing your own research. You must ask questions until you understand the investment. If you do not understand it, do not invest in it.

3. Rely on experience

Software and mathematical models can increase understanding but in the end it is people who make the difference. Smart investors seek the help of experts.

4. Never assume

It is easy to make assumptions and accept the information you are given. You must test the assumptions through questioning.

5. Understand the risks

It can be tempting to pretend that a risk is small if something sounds really good. You must accept that risk always exists. Discuss it openly with your adviser so it can be managed. Think about your goals, how soon you want to access your money and your risk appetite will help you make a decision on which investments are right for you.

6. Mix up your investments

Avoid putting everything you have got into one investment. Spreading your money across different types of investments may protect you from sudden market falls and deliver more consistent returns over time. The larger number of small and different investment risks you take can provide a higher probability of more consistent returns.

7. Stay focused

Be consistent and think long term. A rigorous and systematic approach will beat a constantly changing strategy every time. While there are exceptions, fluctuations in the value of your investments they should even out over time. So the longer you stay invested, the less investment risk you are exposed to.

8. Use common sense

Investing requires you to make judgements rather than following a script. It is better to be approximately right than to be precisely wrong.

9. It is not just about returns

It is all about risk and return. Accepting and managing the risk may help you realise the return you desire.

Just like achieving other goals in life, you need to decide how much risk you are prepared to take in chasing higher rewards. If the risk is just too much to bear, you can consider putting your money in one of our premier Halal managed funds where a team of experienced Islamic portfolio managers will help you manage your investments.

Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our licensed financial adviser about what best suits your situation. Our financial advisers can help you understand your risk comfort level, and design an investment strategy that’s right for you.