What exactly do In life, risk is generally seen as something to be avoided. With investment, risk could be beneficial. A higher risk investment doesn’t mean an investment to be avoided – it simply means the we mean by outcome is less certain. risk? The level of risk you take should depend on your investment goals. If you’re investing for the long term, you may choose a higher risk investment. If you’re investing for the short term, you may choose not to take a lot of risk. Risk in a nutshell When you think about risk in life, you think about Which road you choose depends on your goals – the potential hazards or increased levels of danger. Risk traffic-free road will get you there eventually but if in finance and investment means something slightly your goal is to get there faster, you may take the direct different – it simply means the level of uncertainty in route, and take the risk of getting stuck in traffic. the outcome of your investment. Deciding your goals All investments carry a level of risk, and a higher risk Your investment goals are the first thing you need investment doesn’t mean that you should avoid it at to think about when choosing your level of risk. Your all costs. It simply means that there is less certainty in goals should depend on your individual circumstances, the outcome. attitude to risk and your stage of life. Are you investing When you make an investment, you can never be for the long term to meet a target amount, for example, absolutely certain what you’ll get back when you cash it to pay off the mortgage, save for your children’s in. Risk is implicit in all investments. To achieve a return, education or provide a decent income in retirement? you must therefore be prepared to take some form of If so, you might be prepared to take bigger risks to risk. Even so-called ‘risk-free’ assets are not completely boost returns over a longer timeframe. Alternatively, without risk. you might be saving for the short term or just be looking for a steady income – in which case, it is unlikely Assessing risk that you will want to take much capital risk. Although investment risk is more about uncertainty The reasons you’re investing, the level of risk you’re than danger, you can weigh it up in a similar way to prepared to take and when you’ll need access to your real life risk. For example, there may be two roads into money, should influence the types of investments that town – one a direct route that will get you there faster you make and hold. but could be congested, the other a traffic-free road that circles the town and takes twice as long. 3