Investment risk and return

It’s important to remember that risk is about balancing the chances of a loss with the benefits of a higher return over time, while volatility – the inevitable ups and downs of the market – is an integral, often short-lived part of investing.

A higher level of investment risk—usually found in individual equities—often means that the potential for growth is greater, but there’s also a greater possibility that your investment might fall.  Cash funds, on the other hand, carry lower risk but with that come lower potential returns.

When it comes to your own portfolio your tolerance for risk will help you decide which assets to invest in and how much to afford them. Once this is decided and your blend of assets is in line with your goals it’s all about letting time do the work so try not to focus on short-term market fluctuations but on the long-term potential of your investments.

An illustration of the risk-return spectrum
The risk-return spectrum

This image shows a spectrum moving from the left where assets with lower risk bring lower growth potential towards the right, where assets carrying higher risk bring the potential of higher growth.

Understanding market volatility

It can be worrying when stock markets go down. Our guides will help explain what to do - and what not to do - during times of uncertainty.

Explore more principles for good investing

The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.