Risk and What is risk and reward? When it comes to investing for income, it is important to review your reward attitude to risk versus reward. Risk reflects the chance your investments could fall in value More risk normally means more potential for growth or income If you choose a low-risk investment, the initial sum invested is not expected to grow very much. But if you choose a higher risk investment, your initial sum could grow or reduce considerably. It is also important to keep a sufficient level of cash available for short- term needs and to fully understand the potential risks involved in investing. No financial asset is always either ‘risky’ or ‘safe’ and the risk/reward characteristics of different assets will change depending on the length of time over which you wish to invest. Levels of risk While there are varying levels of income available across the different asset classes, it is worth bearing in mind that investing in assets that pay higher levels of income can increase the risk of capital loss. This is because higher levels of income are often available as ‘compensation’ for taking on greater risk. Before choosing a particular income strategy, it is essential that investors are comfortable with the level of risk involved. Risk is the possibility of losing some, or all, of your capital (your original investment). Risk refers to uncertainty. All investments carry a level of risk. 4