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The intimate relationship between risk and return

The financial risk and return spectrum is broad, ranging at its theoretical extremes from storing cash under your mattress (zero risk, zero returns) to taking your money to a casino (the ultimate high-risk, high-return ‘investment’).

Within the extremes of this broad relationship between risk and return is a middle range in which most of us will need to assess our own risk tolerance and make our investment choices. Usually this will involve the main asset classes of cash, fixed interest, property and shares – or a combination of these.

Risk tolerance and your financial goals are inextricably linked because your risk tolerance will affect how quickly you can reach your goals. Trying to accelerate your savings rate to reach your goal sooner will probably mean taking on extra risk.

Then there is a third critical element in the risk and return equation: time.

Is time on your side?

Riskier investments tend to generate higher returns over the longer term, albeit with some ups and downs (volatility) along the way. The luxury of time provides investors with the means to lessen the risk of investing in shares and other high-growth assets because they have longer to ride out the volatility.

Your Financial Planner will help you assess and quantify your goals, set clear action plans, help you decide on your attitude to risk, and recommend the best investments for you.

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