Selecting a risk strategy that best suites you is an important part of your retirement savings and investment strategy. The higher your risk level, the bigger your potential gains but also your potential losses. Taking risk over the long term is critical to increasing investment returns and reaching your investment goals. Generally speaking, the longer you intend investing your money, the more risk you are able to take. This is because both your chance of losing money and the volatility of your returns reduces the longer you hold an investment. Over a long period of time the years in which your returns are poor can be offset by the years in which the returns are very good. This does not mean that you cannot take risk closer to retirement, or during retirement for that matter. We are living longer and longer making it necessary to take risk in order to achieve returns. The chart below shows the typical range of possible investment gains and losses per year by risk strategy. During our online process, you will be asked to select a risk strategy that best suits you. The pink marks show the expected average yearly return per risk strategy. The vertical lines on represent the likely range of possible returns around this average every year.
We always take into account how long you intend investing for when selecting the right investments for you. The “aggressive” risk strategy we implement for someone in their 20s is quite different from that of someone at or after retirement. So what we are trying to establish is how much risk you are willing to take over a long period of time for an expected level of reward, in the form of investment returns. Some descriptions to guide you: Aggressive risk strategy - you are looking to maximise returns and understand that there will be times when your portfolio will suffer losses (sometimes substantial losses). However, you also expect years where you will make substantial returns to more than offset any loss making periods. It is highly unlikely but not impossible that at the end of your investment period you will suffer a loss. Moderate Risk Strategy - you are looking for moderate returns and understand that you are likely to experience losses at times, but are uncomfortable with these being substantial (although there is still a possibility). As with an aggressive strategy, there will be years of strong returns but to a lesser extent. Conservative Risk Strategy - You would rather have much lower returns that at times may not even beat inflation because you are more concerned with minimising your chances of making any losses. This is not a common long term investment strategy and can seriously jeopardise your ability of attaining your long term investment goals. We encourage you to see what the impact of choosing different risk strategies is on both the size of your expected level of return and on the variability of that level of return. You will be given an opportunity to do this as one of the steps in our online process. We review your choice of risk strategy with you at least once a year to ensure it is still relevant to your current circumstances. Over and above this, we will gather additional information from you as you approach retirement and adjust your investment and risk strategy accordingly. Your investment and risk strategy leading up to and at retirement is largely dependent on your income needs as a percentage of your portfolio value at the time.