‘Risk’- Why it isn’t so bad after all


As somebody who came into finance in an odd way (as a Lawyer), I feel I can be a good connector between the world of financial jargon and the everyday Australian. The biggest disconnect I seem to see between these two worlds is the concept of ‘risk’.

When most Australian’s think of the concept of ‘risk’ with regards to their investments, they are concerned with the risk that they will ‘lose it all’. This isn’t surprising considering the news reports of giant, spectacular collapses where investors have sometimes lost all of their life savings.

This isn’t quite accurate however as the concept of ‘risk’ is far wider than this and can refer to many different factors. Usually, when a Financial Planner talks about ‘risk’ they are generally referring to the expected frequency your investment will rise and fall over a given period and not the risk that you will ‘lose it all’.

Do you see the disconnect?

In most cases, the higher the ‘risk’ of the investment, the higher the expected return. For example, most shares are considered a ‘high risk investment’. Shares can rise and fall spectacularly on a day to day basis but over the long term have proven to be one of the best performing assets. When Financial Planners talk about shares being ‘high risk’, they are referring to this rise and fall of prices. However, when an everyday Australian hears the words ‘shares are high risk’, they worry that they will lose all of their money.

Risk = Reward

Generally speaking, higher risk equals higher reward. This is why a good investment plan is one that is tailored to your lifestyle goals. If you were saving for a house and needed somewhere to keep your money for a year whilst you put together enough for a deposit, then shares are a TERRIBLE investment. Given the relatively short period of time, you may be lucky and get a good period of return but you may also be unlucky and your investment could drop substantially. If however, you wanted to put away some money for your child’s university fees and were willing to wait 10 years, shares may be the best performing asset over the long term and appropriate to your investment goals.

The best investment is the one that is tailored to fit your lifestyle goals

What about you? Do you have any investments that would be considered ‘high risk’ but that fit your lifestyle goals?

– This post is from Ben Brett. Check out our details in our about us page

Posted In: Investments and Ben Brett

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.