Nearly four in ten Australian investors revealed they lost money they couldn’t afford to lose last year, according to research from ASIC’s Australian Financial Attitudes and Behaviour Tracker1. The survey found a contributing factor is that many Australians do not have a good understanding of key investment concepts, such as risk, return and diversification.
Risk and return
Risk is the chance an investment won’t give you the outcomes you want. It’s important to understand the risks and keep within a level of risk that you are comfortable with. Remember that higher potential returns usually come with higher risks.
Use tactics to manage risk
Your aim is to meet your goals, protect your capital and maximise returns, without exposing yourself to too much danger.
You can do this by:
Diversification helps you ride out the ups and downs of financial markets by spreading your money across different asset classes, or across different assets within a class. It will leave you less exposed to a single economic event, so if one business or sector you’ve invested in isn’t performing well, you won’t lose all your money.
ASIC’s MoneySmart online tools
To help people better understand and manage their investment risk, ASIC’s MoneySmart has developed online tools to help support decisions around common types of investments, including shares, managed funds and property.
The Investor toolkit helps you access information you’ll need to start investing. The online tool asks questions to build your investing profile and provides a reference list of relevant investing articles.
ASIC’s MoneySmart Investing Challenge has three interactive modules designed to help you better understand investment products and the risk and return factors. This is important for all investors, including pre-retirees managing self-managed super or other superannuation money.
For more information and tools on developing a sound investment plan visit ASIC’s MoneySmart website.
Greg Medraft is Chairman of the Australian Securities and Investments Commission
 Source: Australian Financial Attitudes and Behaviour Tracker, Wave 4, September 2015- February 2016, p32.