Investment Risk

There are various classes of investment, with different degrees of high or low risk

Investment is putting your money at risk, to be used in business long term, in the hopes that you can receive a good return on your money. Low risk investing is based on the assumption that history will continue for the foreseeable future. Therefore, even though any one company may fail, over time, the overall market will continue to grow beyond the short term ups and downs. We invest, then, as broadly and as balanced as possible.

At the heart of the investment management industry are the managers who invest and divest client investments.

A certified company investment adviser should conduct an assessment of each client’s individual needs and risk profile. The adviser then recommends appropriate investments.

The investment style selected for each client depends upon risk appetite and return expectation. There are a range of different styles of fund management that the institution can implement.

For example, growth, value, market neutral, small capitalization, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics.

The risk-return spectrum is the relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment. The more return sought, the more risk that must be undertaken.

There are various classes of possible investments, each with their own positions on the overall risk-return spectrum. The general progression is: short-term debt; long-term debt; property; high-yield debt; equity. There is considerable overlap of the ranges for each investment class.

Someone who invests money they cannot afford to lose – such as building a retirement fund or a child’s education fund – should look for lower risk, and should lower the risk of the investment closer to the time they are going to need the funds. You want your investments to have a chance to overcome seasonal problems in the market.