How you feel about investment risk and reward
Your aim should be that over the long-term any investment you make will go up in value. But of course the value could also go down and you may have to accept some level of risk when you make an investment. To invest in the right funds, you should first decide how much risk you are comfortable with.
Risk: what type of investor are you?
Before investing, you should decide:
- What you want to achieve with your investment.
- What levels of investment risk you're comfortable with.
- How long you're happy to invest your money for.
We have many different types of funds you can invest in, and so deciding what you want to achieve with your investment is important because it will help you make decisions about where to put your money.
Understanding your risk/reward profile
If you're not sure what sort of investor you are, our handy risk profiler tool can help you understand more about investment risk and what levels of risk you feel comfortable with. Based on your answers it will also suggest some funds that are suited to you.
Our risk profile categories
Once you've answered the risk profile questions, you'll be categorised into one of seven risk profiles. You'll then be able to choose investments that match your risk profile, with the help of a financial broker or advisor.
Lower risk and reward investors
- '1 - Very low risk' investors: unwilling to accept any significant risks, accepting the prospect of low returns to achieve this.
- '2 - Low risk' investors: likely to accept limited risks and want to try to avoid large fluctuations in the investment value, accepting the prospect of more modest returns to achieve this.
- '3 - Low to medium risk' investors: likely to accept some risk in return for the potential of higher investment gains over the long-term. Try to avoid large fluctuations in the investment value, but accept there will be some fluctuation, particularly over the short-term.
Medium risk and reward investors
- '4 - Medium risk' investors: likely to accept significant risk in return for the potential of good investment gains over the long-term. Accept significant fluctuations in the investment value, particularly over the short-term, but want to limit the amount of money held in more risky investments.
High risk and reward investors
- '5 - Medium to high risk' investor: likely to understand that the investment can go down and up sharply with the potential for greater returns over the long-term.
- '6 - High risk' investor: likely to aim for high possible returns and accept higher levels of risk, recognising that the investment value may fluctuate very sharply, particularly over the short-term
- '7 - Very high risk' investor: likely to aim for the highest possible returns and accept the highest levels of risk, recognising that the investment value may fluctuate very widely, particularly over the short-term.
Example funds: Pathway 6