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Strategies to manage investment risk

Exposure to risk is a big part of investing and although individuals cannot eliminate risk completely, they can implement strategies to manage risk and achieve their financial goals.

Managing investment risk is particularly beneficial in times of increased volatility and unfavourable economic conditions as well as ensuring investors meet their long-term investment goals. Here are three ways to manage investment risk:

Asset allocation
Including different asset classes (i.e shares, cash, property) in your portfolio can help to balance risk and return based on an individual’s age, risk tolerance, goals and investment time frame. As different asset classes will perform better at different times depending on the underlying economic conditions at the time, it is important for a fund to invest in a diverse mix of assets.

Diversification
Diversification aims to maximise an individual’s return by investing in different asset classes that react differently to the same event. Although it does not guarantee avoiding a loss, diversification is an important component of reaching long-term financial goals while minimising risk.

Regularly monitor investments
Be sure to regularly monitor each investment in your portfolio. This helps to ensure your investment goals are on track and remain in line with your risk profile. Keep on the lookout for warning signs that your investment might be heading downhill but don’t focus too much on short-term volatility for long-term investments. It is best to revisit your investment plan with your adviser at least once a year.

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Transition to retirement

November 25, 2020

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.