There’s always going to be risk with any investment strategy. In fact, there’s risk just having cash in a bank account. Inflation tends to erode the value of your money and this is a risk to savings.
Investment markets tend to rise and fall and move in cycles. Some asset classes may experience a high degree of rapid changes than others. This is what we term volatility. Volatility could lead to market risks. Asset values may drop as a result of this. As different asset classes experience different degrees of volatility at any given point, mixing these assets up could reduce the stress volatility could cause on your overall investments. This will reduce your risk in the investments. This is what diversification is all about.
Interest rate risk
As discussed, when you borrow money to invest, there’s a cost associated to it. Interest rates tend to rise and fall too. Generally, when interest rates fall, most people are comfortable with that and tend to increase borrowings or use the extra capacity to pay down the debt. However, if interest rates rise, there’s a strain on cashflow and without proper cashflow planning, you may find yourself to be stressed. You can fix interest rates if you think interest rates are going up. Much as this doesn’t stop rates from rising, it sure helps with your cashflow management to know your expense throughout.
Risk to income
We discussed what could potentially happen to your income in the event of sickness, injury or loss or job even. You may be able to have a cash buffer for these unplanned events or in some cases buy insurance to cover these events. Without the income coming in, you may not be able to maintain your loan repayments which may lead to having to sell your investments when you’re not ready to do so.
Investment success will not happen by chance. We can help you design and monitor your personalised strategic plan to ensure you can reach your intended life goals.