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Managing Investment Risk

Greg Medcraft
15th August, 2015

Volatility in global markets can affect investor and consumer confidence. In times of market uncertainty and increased volatility it’s important to remember the key principles of risk management for your investments.

Diversification

When investing, you should consider holding a diversified portfolio that is in line with your risk profile. A diversified portfolio will mean you are less exposed to a single economic event or geographic region. Diversification within and across asset classes and industry sectors is important, as is geographic diversification. A well-diversified portfolio allows a fall in the value of some investments such as international holdings to be offset by an increase in the value of other assets.

Focus on your investment goals

Short term volatility in financial markets may be unsettling but over the long term you should be able to ride out these ups and downs. Short term volatility isn’t a reason to panic and sell your investments. Some investors try to time the market and fail.

It is important to focus on your long term investment goals, especially for retirement planning. If your strategy is sound, and the investment is long-term, stay with it.

Monitor your investments

Make sure you keep track of where your money is invested and monitor your portfolio’s performance. This can help you understand and manage the risks of your investments and keep on top of your overall investment goals. From time to time, you may need to rebalance your portfolio so it remains in line with your risk profile.

Seek financial advice

It’s important that you are comfortable with where your money is invested. If you are uncomfortable with increased volatility in your investments or are unsure how recent events could impact you, it can help to seek professional financial advice.

ASIC’s MoneySmart website has guidance on choosing a financial adviser to help you find one with the right experience and qualifications to give you the level of service you need.

Beware of scams

When global markets are volatile, scammers can try to take advantage of consumers, for example people who may wish to send money overseas.

Be very careful who you send your money to. If you send money to someone and they turn out to be a scammer, it will be almost impossible for you to get your money back.

ASIC’s MoneySmart has information about avoiding scams and what to look out for when sending money overseas.

In times of uncertainty and increased market volatility make sure you remember the key principles of risk management for your investments.

To learn more about managing investment risk, visit ASIC’s MoneySmart website at moneysmart.gov.au for guidance on diversification, risk and return and keeping track of your investments.

Editor’s Note: Members of the Defence community should make use of the ADF Financial Advice Referral Program at www.adfconsumer.gov.au in order to locate a financial adviser free from remuneration-based conflicts of interest.

Greg Medcraft
Chairman
Australian Securities and Investments Commission

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