Risk vs Return
All investments carry risk – and managed funds are no different.
Perhaps the biggest risk when investing in managed funds is the volatility of returns and capital growth. Interest rate changes, inflation, market conditions and poor investment decisions can all have an impact on your investment.
Just as you should be aware of the benefits that come with investing, you should also fully understand the risks, act to minimise them and select a suitable investment and investment manager for your financial goals.
- So what type of investor are you?
- Are you willing to accept added risk of potential losses for the opportunity to earn greater returns?
- Are you more comfortable with less risk and lower returns?
- Or would you prefer a more balanced approach?
Generally, the higher risk you’re prepared to accept, the higher the potential return. Higher risk however, will also increase the chances of incurring a loss in capital. The more volatile the investment, the greater the time required to ‘ride out’ any possible downturns in the investment’s value and maximise long-term returns.
This graph demonstrates the decline and recovery of markets that were affected by Australian and world events.
- Australian Shares-All Ords Accumulated index
- Australian Fixed interest-UBS Australian Composite Accumulation Bond Index
- Australian Listed Property Trusts - ASX 300 Accumulation Property Index
- Cash-Interbank cash rate
- International shares-MSCI world ex AU Total Return Net AUD
- Inflation-CPI Consumer Price Index Quarter end rate All groups
The following graph illustrates the best and worst performance by each asset class over a 20 year period – along with the average annual return during the same period.
For instance, Australian shares achieved the best result (+45%) over the 20 years, but also the worst return (-40%), illustrating that growth assets have the potential for both significant returns and significant losses.