- Risk & return are related.
- There is no additional return without additional risk.
- Investments with the same risk must offer the same return.
Risk has many dimensions – and we want you to be aware of them all.
Our primary role as financial planners is to educate so that a client can accept an acceptable level of ‘market risk’ (the chance that returns will fluctuate) and align it with the associated ‘shortfall risk’ (the possibility that a portfolio will fail to meet longer-term financial goals, because the investor is not taking enough risk).
Risk can be reduced through diversification and therefore the most important decision when considering risk is deciding on the mix assets (asset allocation).
Deciding on the mix and proportion of shares, bonds, and cash in a portfolio is critically important – much more so than deciding on individual assets or funds. To work out the asset allocation that’s best for each client, we consider the individual’s financial needs & requirements, their tolerance of investment risk and the length of time they plan to hold the investment.
If an investment portfolio does not reflect the overall investment market in terms of a balanced asset allocation, then the investor may be taking on too much risk or being too cautious.
In the long run, what matters most is that our services help our clients to meet their objectives. It is worthwhile remembering that whilst stock market investments are subject to risks, there are also risks in being too conservative.