How to decrease investment risk

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By Jackson Stark

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23 August 2019, 4:45 PM

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We often see headlines dominating the media warning of a share market crash or advising you to steer clear of property, buy gold or load up on Bitcoin!

The way we like to approach portfolio management and investing doesn't necessarily involve trading investments based on the latest news flows or by buying whatever is running hot at a moment in time due to the significant risks. We like to employ a concept of diversification.

Through employing a diversified approach, you reduce your overall investment risk and it leaves you less vulnerable to a single economic event such as a property bubble or retail downturn. So, if one business, sector or geographic location makes a loss or performs badly, you will have limited exposure to any single asset, and you will be less likely to suffer a big loss.

When an investment portfolio is diversified correctly, the returns and volatility exhibited by the portfolio is smoothed out. For example, if Australian Shares have a strong period of performance but Listed Property has a poor period of performance the two should even out and help you ride out the ups and downs.

If you have a smaller amount to invest or don't want the responsibility of choosing individual investments, you might consider an exchange traded fund or managed funds that invest across a broad range of assets and handle some of the diversification work for you. If you choose this method, you should then also diversify your funds across a variety of investment managers to protect yourself if a particular fund suffers a period of underperformance.

Diversification won't guarantee gains or protect against losses, it's about managing the risk/reward trade off by selecting a mix of investments to help you achieve more consistent returns over time.

More information

If you would like to learn more about investing, please feel free to contact the Morgans Toowoomba office on (07) 4639 1277.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.