Enjoying Retirement

Taking care of my young family...

Knowing my finances are working for me

If this happened to me...

Risk Tolerance

Your risk tolerance is your ability or willingness to endure declines in the value of your investments while you wait for them to return a profit. Some investors find it easy to ignore market fluctuations and to focus on their long-term investing goals. Others become anxious when their portfolio declines in value by even a small percentage. Your emotions play a significant role in how you allocate your investment assets.

Consider how you would react to a 'bear market', where the value of a share investment declined by 20 per cent or 25 per cent over an extended period of time.

Keep in mind:

  • over the past four decades, 'bear markets' have occurred, on average, about once every five years; and
  • during October 1987, the Australian share market dropped by 42.1% and in the first half of 1994, the Australian bond market dropped by 6.4%.

If the possibility of such a loss would keep you awake at night, you might choose a relatively conservative asset mix. However, in doing so, you run the risk that inflation will erode a greater percentage of your returns.

Keep in mind, too, that all investments - even 'safe' choices like bank accounts or cash funds - are subject to some type of risk.

Market Update

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