Determining the risk associated with various investments can be quite difficult and many factors can influence investment risk. This leaflet shows a number of common investments and their potential risk and return, their ideal time frames and the types of risk that they may be exposed to. It has three main components which are listed below.
The Time Frame Indicator shows the ideal length of time to hold the investment (shown in green). Holding the investment outside these time frames (shown in red) could increase the level of risk that may affect the investment as shown on the risk meter.
The Return Meter is designed to indicate where the investment may typically fit with consumers desired orexpected returns. Consumers expectations are usually related to their risk profile and needs and objectives.
The Risk Meter is designed to indicate the risk level that the investment may typically be exposed to, especially if it is invested outside the ideal time frame as shown on the time frame indicator.
NICRI's moneymap website provides a risk profiler that assists in determining risk profiles and a tool that helps prioritise needs and objectives
Defensive: High security, short time frame (1–2 years) and low returns.
Conservative: Medium to high security, short to medium time frame (1–3 years) and low to medium returns.
Balanced: Medium security, time frame (3–5 years) and returns.
Growth: Lower Security, longer time frame (minimum 5 years) and higher returns.
Aggressive: Low security, long time frame (minimum 5–7 years) and high returns.
Fixed Interest: Mortgage trusts, Bonds, Income funds.
Debentures: A fixed term investment where funds are on-lent/utilised for various purposes. Refer to NICRI leaflet Debentures.
Liquidity Risk: Not easily converted to cash.
Manager Risk: Changes of manager/personnel.
Inflation Risk: Investments do not keep pace with inflation.
Legislative Risk: Government changes to rules/regulations.
Economic Risk: Effects of current National/International Economy.
Illegal Activity Risk: Losses due to fraud.
Markets Risk: Volatility of financial markets.
Timing Risk: Entering and exiting the market at optimum time.
Pricing Risk: Value of investment can decrease with market movements.
Currency Risk: Movement in value of foreign currency.
Major Event Risk: Man made or naturally occurring events e.g. Cyclone Larry.
For more information on types of Risk refer to NICRI booklet Safety, Risk and Scams in NICRI Publications.
This publication is also available for download from the following location Risk Meter
Disclaimer: These ratings are of a general nature only and should not be relied upon when placing investments. Individual investment organisations perform and manage differently, which may cause very similar investment products to vary widely in their level of risk, therefore it is important to read and understand the Product Disclosure Statement. Readers should not rely on the information in this guide alone as a basis for making an investment.