4 questions to ask yourself about risk
June 28, 2023
For many people, super is the second biggest asset they’ll have after the family home. So how should you invest such an important nest egg and what should you ask yourself about risk?
The answer varies depending on your individual circumstances. To help guide you in the right direction, you might like to consider your “risk profile” which looks at some of the areas below:
1. What do you want to achieve?
Consider your own personal circumstances and what you want to achieve with your super. Perhaps you’re looking to grow your wealth and ultimately fund your retirement, or maybe you’re investing in super to diversify your investment portfolio – either way, knowing what you’re trying to achieve will give guidance to which option is appropriate for you.
2. How long you want to invest for?
You need to balance risk and return. As you near retirement you have a shorter investment timeframe which means less time to recover from any significant market drops – but this doesn’t mean your super can’t keep growing. When no longer working, many people choose to start an income stream, which provides a reliable income to support lifestyle activities while still maintaining investment control.
3. What's your reaction to volatility?
Be honest with yourself about your risk profile and your ability to withstand market volatility. Would the idea of a dip in the market keep you from a good night’s sleep? If so, a more conservative option with less investment risk may be more appropriate for you.
They say the greater the risk, the greater the return so if your main priority is growing your super as much as possible over the longer term, an option with higher risk may be appropriate.
At the end of the day you need to be comfortable with the amount of risk you are taking with your investment decisions (and don’t be swayed by what your peers are doing!).
4. Do you have other investments?
What sort of other investments do you hold? If you own lots of high risk investments outside of super, perhaps it could be smart to diversify and keep your super a bit more conservative.
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Having the right investments now can help support your lifestyle when you’re no longer on the clock. And what better way to start your golden years than with the Chant West 2022 and 2023 Pension Fund of the Year!
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