How risky are your investments? It depends on how much time you have
If you require a higher return on your investments than you would get at a bank, then you need to take on more risk.
When most people talk about “risk”, they’re referring to “volatility” – the potential of your investment value to fluctuate over a period of time.
Time tends to smooth out the wild swings, so investing in “risky” shares requires a longer commitment.
Depending on how long you’re planning to remain invested, here’s where to save (according to Certified Financial Planner Paul Roelofse):
Less than five years – choose a low-risk investment
These investments won’t shoot the lights out, but they provide more certain returns.
Pay off debt
Money market accounts
Between five and 10 years – choose a medium-risk investment
These investments do fluctuate – but not as wildly as the next category – and need five to ten years to smooth out returns.
Property exchange-traded funds
Balanced funds – unit trusts
More than 10 years – choose a high-risk investment
These investments remain your best bet for high returns that comfortably beat inflation. They fluctuate wildly in value over short terms, so you need to take a long view.
Equity unit trust and exchange-traded funds
Shares – direct portfolios
Ideally, you need to invest over all these time periods to provide for the various savings needs in your life, says Roelofse.
Your investments should be aligned to your appetite for risk.
For more detail, listen to the interview in the audio below.
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