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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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News

SMSFs: beware of illegal early super release

July 13, 2018

The Australian Tax Office (ATO) is reminding self-managed super fund (SMSF) trustees to beware of allowing members to access their super early.

A self-managed super fund (SMSF) trustee must meet a condition of release before any funds can legally be released.

The ATO can issue severe penalties if you or a SMSF member access your super before you are legally entitled to do so.

Some consequences of getting caught up in an illegal super scheme include the disqualification of trustees, imposition of administrative penalties, the fund being made non-complying and prosecution.

The Tax Office encourages those members who have been involved in an illegal super scheme to contact them immediately. The ATO will review your voluntary disclosure and take your circumstances into account when determining any penalties.