Growth is the amount an asset may increase in value. Risk is the potential volatility – or change in the value of an asset – including the possibility of a fall in value.
Essentially, the level of growth for an asset is directly related to its level of risk, which means:
- The higher the growth of the asset, the higher the risk
- The lower the growth of the asset, the lower the risk.
Shares are a high-growth asset. Property can also be regarded as a high-growth asset. Generally, these asset classes have the following features:
- The most potential to earn high investment returns over the long-term
- Higher levels of risk of a fall in value in the short-term
- Investment returns for high-growth assets may vary significantly from one year to the next
- There is the possibility of negative investment returns in some years.
Lower-growth assets include fixed interest and cash, and have the following features:
- Usually earn lower investment returns
- Lower levels of risk of earning a negative investment return in any year.
To help you understand the type of investor you are, and how you feel about risk, AustralianSuper has developed an online Investment Risk Profiler. You canuse it right now, if you wish.