Risk

Risk and return

returngraph

When we’re talking investments, we hear a fair bit about ‘risk’ and ‘return’. But what do these terms really mean for your money?

Risk usually refers to volatility – how often and how dramatically the value of an investment moves up and down.

Return refers to the change in value of an investment. Returns can be positive (an increase in value) or negative (a decrease in value).

Generally, investment options that provide potentially higher returns also carry more risk. On the other hand, assets with lower risk normally provide lower returns. Focusing too much on low risk can lead to lower returns and a lower chance of an adequate balance at retirement.

For example, shares can dramatically rise and fall in value, so the risk is higher. Whereas, cash in a bank account does not change much in value, so it is a low risk investment.


Risk levels of our investment options

We’ve rated each of our eleven investment options by its risk level, depending on the number of years in which you could expect a negative return over a 20 year period.

OptionRisk amountEstimated number of negative annual
returns over any 20 year period
Cash Very low Less than 0.5
Fixed interest Low to medium 1-2
Conservative Low to medium 1-2
Moderate Low to medium 1-2
Sustainable Medium to high 3-4
Balanced Medium to high 3-4
Property Medium to high 3-4
Growth High 4-6
Australian shares High 4-6
International shares High 4-6
Tasplan OnTrack See below See below

The risk level for each Tasplan OnTrack stage is set out below.

 OptionTasplan OnTrack stageRisk amountEstimated number of negative annual
returns over any 20 year period
Tasplan OnTrack    Maintain  Low to medium 1-2
 Control Medium 2-3 
Sustain  Medium to high 3-4 
Build  High  4-6 

 

We based the ratings on assumptions as at December 2016. They:

  • include investment return forecasts
  • are after taking off investment management fees but not administration fees
  • include the impact of tax (ignoring the impact of franking credits)
  • reflect a conservative approach to assumptions, particularly in relation to their potential to avoid short-term negative returns
  • may change over time in terms of their strategic benchmarks (asset allocation) and long-term return assumptions.

Find more information about our investment options.


How much risk to take?

How do you choose which investment option is right for you?

You need to balance the return you would like with the amount of risk you’re comfortable with. This will likely depend on a range of factors, including your personality, income and life stage.

Consider using the 'sleep at night test' to help you decide. Take the maximum level of risk you can tolerate and still sleep easily.

Our Risk profile questionnaire can help you get started.


Next steps

For the full box and dice on the best investment choices for you, consider professional financial advice.