How to manage your investment risks

Last updated on 5th December, 2019 at 03:55 pm

Diversifying your investment portfolio is one of the best ways to manage your risks. Here’s where to start.

1. Understand your own risk profile

Before you can begin to manage your investment risks, you have to understand what risk looks like for you. In other words, what appetite for risk do you consider to be risky and conservative?

Once you know your own risk profile – something a financial planner can ascertain with you – this determines which asset classes should be included in your investment portfolio.

2. Use different fund types to your advantage

Consider the types of funds available, where they are allowed to invest, what they are allowed to invest in and their respective risk classification. Unsure? Speak to your financial planner to decode jargon.

Brush up on your investment glossary here.

3. Interrogate a fund manager’s philosophy before investing

Research and select fund managers, understanding their fund’s objectives and investment philosophies. Past performance is not indicative of future performance of a fund – no one, after all, can accurately predict or guarantee the market. So back the jockey, not the horse: understand who manages each fund, and how they approach their selections. If this isn’t shown on a fund’s fact sheet, request to see this.

If you have a financial planner, they should be doing this for you – ask them how they’ve selected fund managers on your behalf.

4. Diversity brings security

Build your portfolio with a blend of complementary funds. That way, if one underperforms you haven’t put all of your money in one place.

5. Understand the costs associated with your portfolio

Check your statements and ask your planner about any costs you aren’t sure of.

6. Keep monitoring and rebalancing your portfolio

Meet regularly with your financial planner to keep things up to date.

Want to find out how else you can create a winning investment portfolio? Click here.

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