Can I still get good returns if I reduce investment risk?

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Ask the expert at Smith & Pinching about how adjusting your investment risk profile can affect your returns - Credit: Getty Images/iStockphoto

I have a portfolio of investments that I’ve built up over the years which contains a range of investment funds. I have always pitched for high growth in the past and have been willing to take a fairly high level of risk but, now I’m in my early sixties, I’m beginning to think that perhaps I should be more cautious so that I can leave a decent legacy for my children. Can I still get good returns if I reduce the risk I’m taking?

Phil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners

Phil Beck, Independent Financial Adviser with Smith & Pinching, Chartered Financial Planners - Credit: Smith & Pinching

Phil Beck of Smith & Pinching responds:

Investment risk is something that we discuss with clients at every review. The way you feel about risk may change as you grow older or if your circumstances change, so you may want to change the risk profile of your portfolio at various stages of your life.

I think you would benefit from a full review of your financial arrangements so that you can make sure they are on track to achieve what you want from them at this point in time. An independent financial adviser will carry out an assessment of your investment risk profile and suggest changes to your portfolio if appropriate, taking into consideration the results of the assessment.

The outcome of a risk profile assessment will usually be influenced by your answers to a set of questions designed to explore how you feel about fluctuations in the value of your investments for the potential of improved returns, as well as your understanding of investment risk. The questionnaire also takes into account your thoughts and concerns about investing, so that you can agree on the appropriate overall risk level for your portfolio with your adviser.

Your question asks if you can still get good returns if you reduce the risk. There is the potential to achieve positive returns at all risk levels if an investment portfolio is held over the medium-long term, although of course that cannot be guaranteed. The important thing to consider, however, is what you want to achieve with your portfolio and how that ties in with your circumstances and your objectives. A comprehensive financial plan, regularly reviewed and adjusted as needed, is the key to reaching those objectives. I strongly recommend you take independent advice to put together a suitable plan.

Any opinions expressed do not constitute advice. The value of your investment can go down as well as up and you may get back less than the amount invested. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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