Understanding high-risk and low risk is fundamental to knowing where your investment ‘comfort zone’ lies.
Here at ActOn Wealth, we believe that understanding your relationship to risk is crucial. In fact, this is the starting board to everything we do in planning for your wealth creation.
When it comes to investing, what is the definition of risk?
In the world of finance and investment, we regard risk as the likelihood of an investment outcome not aligning with expectation. Nobody invests to lose money. So, in layman’s terms, it is the chance of you losing either some or all of your investment. However, it’s important to be clear that low risk does not mean no risk.
What are high-risk vs low-risk investments?
When investing, risk and return are mutually inclusive. The greater the level of risk, the higher the potential profit or loss. Inversely, a lower level of risk carries lower yields.
How do you assess risk when considering an investment?
The first step would be to appoint a financial planner you can trust to provide total transparency so that your options are scrutinised and understood. How do we assess this here at ActOn Wealth? We have an in-depth understanding of:
Historical behaviours and outcomes of both low-risk and high-risk investments;
Understanding the volatility of an investment’s value compared to the historical data. We do this by considering standard deviation; higher standard deviation carries higher risk;
How can we reduce risk when investing in property?
Property is a growth asset that produces income and fluctuates in value over time. So, rather than saying there is such a thing as a low-risk property investment, we’d instead say that you can minimise your risk. So, how do you do this?
If you’re considering estate planning, you should ask yourself questions such as:
Does the cost reflect the average price of other properties in the area?
Location, location, location! Where is the property located? Does it have a solid track record for growth, or is it struggling?
Will you positively or negatively gear the property? In other words, once all expenses, monthly mortgages and taxes are paid, do you have money left over (positive) or are you owing (negative)?
If you plan to rent the property, what is the established or forecast rental return? For example, is there a high turn-around in occupancy (e.g. are you likely to experience periods where there is no rental income)?
Who manages the property, and what is their reputation and level of experience?
What level of maintenance does the property require or will require?
Have you conducted or have access to a recent and reputable full structural report of the property?
What is the tenant profile - do they pay on time, do they look after the property well, do they ever receive complaints?
If it is not yet tenanted, how will future tenants be vetted?
Could you sell the property fairly easily if required and if so, how confident are you of making a return?
If you’re not yet ready to invest in directly owning a physical property, then a Real
Estate Investment Trust might be for you.
How do you offset risk?
There are two key steps you can take to help offset high-risk investments:
Be aware - never go into an investment ignorant. Be sure you understand the full situation and potential outcomes.
Diversify - it’s that classic rule of never having all your eggs in the one basket.
How do you determine your investment risk profile?
Do you take chances, or are you a more conservative individual?
You’d be surprised how many people are adamant they are one or the other, only to find themselves moving further along one end of the scale (or the other!) once they understand the concept some more. Here at ActOn Wealth, we guide our clients through a robust risk profiling process that really lifts the bonnet on your relationship with the concept. The approach reveals an objective and clear outcome that can often surprise some clients. This questionnaire explores your behavioural and emotional relationship with the concept to determine if high or low-risk investments (or perhaps a combination thereof) are right for you. Alongside this, of course, we fully explore your financial reality. In assessing and understanding the two, we help you determine where your pressure points lie and what investment options are available to you.
How can ActOn Wealth help you?
Our experienced team of experts enjoys the highest financial industry rating possible and provides unparalleled service. We understand that wealth creation has to be as hassle-free as possible. When it comes to investing, stress and anxiety are telltale signs of bad financial planning. If you’re a low-risk individual in a high-risk investment scenario, you will not feel confident or positive. Equally, if you’re hungry for high returns and willing (and able) to take a chance to achieve them, then you’re going to be frustrated and disappointed with a low return investment. Our wealth creators pride themselves in really getting to know you and your situation. In doing so, we can help you make the right decision for you now and into the future.
Contact ActOn Wealth today
If you’re looking for a high or low-risk property investment or you just want to consider ways to grow your wealth, our team of skilled financial planners is here to help. Why not contact us today to arrange a complimentary consultation and see how we add value to your investment planning.