For many investors “risk” is a scary word when it refers to their investments. A couple of sayings in the investment world are “no investment is without risk” and “investors who take on more risk expect to receive a higher level of return over time”. But what is risk in terms of your investments?
Investment risk is perhaps better called investment uncertainty. Put another way, risk is the chance that an investment’s actual outcome will differ from an expected outcome. The more likely it is that we can predict the future value of the investment, the lower the investment uncertainty (or the lower the risk).
Investments in income assets, like term deposits and bonds, are typically lower risk. We have a pretty good idea what the value will be when the investment matures.
In comparison, investments in growth assets, like shares in companies and property, are higher risk due to the uncertainty of knowing what the future value will be. The several funds within a KiwiSaver Scheme will usually consist of a mixture of these income and/or growth assets.
Here at Christian KiwiSaver Scheme, we have 3 funds for you to choose from: Income Fund, Balanced Fund and Growth Fund. The difference between these funds is the different mix of these investment assets e.g. The Income Fund is made up of only income assets, whereas the Growth Fund is made up of mostly growth assets.
You can choose which Fund – or which mix of funds – is right for you depending on what level your tolerance for risk is. For instance, you may decide to choose a fund that has smaller highs and lows, or you may decide you want a fund with potentially big highs and lows which you can tolerate over a longer time period.
Over the next few newsletters we will be covering more content such as this. We have received many great questions from our members trying to get to know their KiwiSaver better. We hope we can support your financial wellbeing by helping you understand more about your investment.