Balancing risk & reward
Everything in life carries a degree of risk
It’s true that there are risks involved with investing, but there are also risks with NOT investing!
If all your savings are held in cash deposit accounts, your money is nice and secure. You probably like to know it’s earning you interest too. But how much interest are your savings really earning?
Because a lot of us pay tax on our savings, and inflation is also reducing the ‘buying power’ of our money, your cash savings might actually be losing value when you take these other things into account.
Why spreading your risk is important
If you’re a really cautious person, you might decide to keep all of your savings in cash deposit accounts. And if you’re a bit of a risk taker, you could put all of your savings straight into the stock market.
But most of us are somewhere in between, and spreading your savings around, across a few of the different types of investments which are out there, actually helps reduce your risk – this is called ‘Diversification’.
Balance your portfolio, to achieve your goals
By combining a few different types of investments (cash, corporate bonds, stocks and shares) and getting the right mix of higher and lower-risk types, you can spread the risk around. This is what we mean by a ‘balanced portfolio’.
Over the medium to long term, there will be times when some types of investment perform better than others. But if you have your money invested in a variety of ways, you’ll have the best chance of achieving your goals.
