Chapter 6

Assessing Your Appetite for Risk and Avoiding Indigestion

In This Chapter

arrow Discovering the trade-off between risk and reward

arrow Finding out your investor profile

arrow Analysing investor types

arrow Knowing what investments suit your investor type

The policy of being too cautious is the greatest risk of all.

—Jawaharlal Nehru, India’s first prime minister

When Jawaharlal Nehru said this, I doubt he was referring to his investment portfolio! But the point is clear — there are two sides to risk. Minimising risk is all very well but shouldn’t be at the expense of making decent money. As much as investors need to be careful of risk, they also need to embrace risk, understand it and learn how to exploit it.

This chapter sets out to explain the risk-and-reward trade-off that is such a fundamental part of investing. Reward is what investors get for putting hard-earned money to work for them. How much reward the investor gets depends, by and large, on how much risk they take. Putting your money into a high-interest bank account carries less risk than investing in shares in emerging economies. ...

Get Managed Funds For Dummies, Australian Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.