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Building and protecting your wealth

Why There’s No Such Thing As a Risk Free Investment

Knowing your comfort level when it comes to risk is crucial when you’re investing. All investments come with some level of risk because there’s no guarantee how anything will perform. You need to make decisions that could either turn out great or cause grief.


This does not constitute advice and advice should be sought in all instances before acting on it.


Understanding various risks will help you make better-informed decisions to reach your financial goals. Let’s take a look at some of those risks.

The different kinds of asset classes are associated with different levels of risk. From low to high risk, they are:

  • cash
  • fixed income
  • equities
  • property, and
  • other asset classes.

Determining your comfort level with risk will dictate your asset mix and overall investment strategy.



Risk for return

‘The bigger the risk, the bigger the reward’ is how the saying goes, but bigger risk also comes with the potential of a bigger loss. Risk for return means simply that anytime you invest your money, there is a risk that you might not get it back.

Many things can influence your comfort with risk – your individual circumstances, your personality, when you begin your investment journey, what your goals are, and so on.


Download our Risk Questionnaire to find out what your attitude toward risk could be. Depending on your answers, your ‘risk profile’ will help you select the kinds of investments that you’re most comfortable with. 


Losing value in real terms

It’s not strictly investing that carries risk. If you place your money in savings, you run the risk of losing value in real terms, also known as buying power.

The reason you could actually lose money despite the figures not changing is because over time, inflation will cause the value of the cash in your accounts to be reduced in terms of what you could get for your money. Indexed-linked investments could also result in earning less than expected if the inflation rate falls instead of rises.

There is a chance that your stock market investments beat inflation and interest rates but there’s always the risk that by the time you need to sell your stock, the price might be too low. In this case, you’re lucky if you get a return at all, but you could also actually lose money during a particularly rough patch.

While there’s no way to avoid risk entirely, there are ways to mitigate it by diversifying your investment portfolio.


Types of risk

Besides capital risk (stock market), inflation risk (declining purchasing power), and interest rate risk (savings) there are other kinds of risk to be aware of:

  • Credit risk –  Not achieving a financial reward due to a borrower’s failure to repay a loan or otherwise meet a contractual obligation.
  • Liquidity risk – Being unable to access your money when you want to. Property investing carries a liquidity risk as you can’t easily get to your money whenever you need it.
  • Currency risk – If you have any foreign investments, fluctuating exchange rates could result in loss.

Ready to invest?

No matter what your goals for investing are –  growing your capital, generating an income, or preserving your wealth – Dental & Medical Financial Services will happily help make your money work hard for you. If you’re ready to design a portfolio finely tuned to your attitude to risk and financial goals, get in touch today.


Want to build & protect your wealth?
Investments | Financial Planning | Retirement | Save Tax | Protection |

Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
Call Darren to discuss your options.

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