why now is the time to think about investment risk

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Why now is the time to think about investment strategies and risk.


Reflecting on the past 6 months, particularly since the effect of Coronavirus on financial markets, I am concerned that many investors do not have a clear and tailored investment strategy.  My observations are that investors seem to be failing to understand one basic investment principle; 'The higher the return the higher the risk’.

In many instances there remains a significant misalignment between the investor’s risk profiles and the investment risk connected with their investment portfolio.

The next 12 to 24 months will experience further challenges and headwind in investment markets, with investors seemingly not factoring in the risk of recession and downturn in markets.

Investors are investing without a strategy or plan that is reflective of their goals and objectives and their personal financial circumstances. Instead, investors are focused on maximizing returns and the index benchmark. In a low investment yield environment, investors are focused on higher returns without considering the associated risk.

Therefore, investors may be taking on more risk than is necessary to achieve their desired outcome.

INVESTMENT PHILOSOPHY

Our Investment Philosophy centres on:

  • Investing with the view to minimise the likelihood of losses, thereby focusing on preservation of capital;
  • Ensuring the investment reflects the level of return for the risk taken, and;
  • Focusing on achieving the highest return for the level of risk prepared to take, not solely the highest return.

Risk simply means the probability of a negative outcome occurring.


RISK PROFILING

When addressing an investor’s risk profile, two factors are relevant:

Risk tolerance

“What keeps you awake at night?”
The investor’s attitude and feeling about risk and the possibility of making a loss.

Ability to absorb risk

Notwithstanding an investors risk tolerance, the ability of the investor to absorb a correction in investment markets or an underperforming asset.


      The Investment Strategy should:

      • Clearly articulate the investor’s financial goals and objectives;
      • Address the investor’s risk profile, both Risk Tolerance and Risk Absorption;
      • Address the liquidity and need to access funds, and;
      • Consider the age, health and life stage of the investor.


      If you are concerned that you haven’t considered inherited investment risks in light of your personal risk profile or need assistance in compiling a relevant and considered investment strategy, please get in touch.

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