Investments

Investments can be in form of cash (eg: your bank account) through to shares, with a myriad of investment types and ways to invest to be considered.

One of the key influences on how we invest is the potential for risk. The meaning of risk can vary. For some it may mean the possibility of losing a portion of their investment due to market movements or a poor decision. For others it may mean not enough income is produced from the investment. Another measure of risk is the variability of returns over time known as volatility. Generally, risk can be viewed as the chance of failure in achieving objectives or goals.

Risk and return are closely related. In general, the higher the degree of risk associated with an investment, the higher the return required by investors to accept this risk. Low risk investments such as cash offer relatively low returns as a reflection of their greater security. This is called the risk/return trade-off.

Understanding your attitude to risk can help you establish where you should invest. The make up of your investments (how much cash, how much in shares) is referred to as Asset Allocation. Asset Allocation will have the largest impact on how your investments perform over time.

Investment strategy exists in most of our financial decisions and is therefore key component of any financial plan.

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