It's important to remember that whenever you invest, your money will be exposed to some degree of risk. Investing for the long-term can provide higher returns compared to savings accounts, but it comes with investment risks, so it’s important to consider the following in seeking to achieve your goals:
1. How long are you planning to keep your investment?
Your investment goals are likely to drive this decision. While there are no guarantees, keeping your investment for a minimum of 5 years, and ideally 10 years or more, increases the potential for better returns. That’s because there’s more time to recover should it suffer short-term dips in value. As you approach the date you want to utilise the money in your investment, you can also choose to reduce its level of risk by switching into less risky assets.
2. How comfortable are you with taking risk?
Generally, the more risk you take, the bigger the potential return on your investment. A more risky investment is likely to be more volatile, which means its value can rise more rapidly but also fall faster. The risk you take needs to be at a level you’re comfortable with and importantly, a level you can afford.
3. How much can you afford to lose?
There’s more to investing than deciding how comfortable you are with risk. You also need to weigh up how much you can afford to lose. If you lost the money you invested, how would this affect your standard of living? Could you maintain your current lifestyle or would you need to make sacrifices? You may be willing to make a high-risk investment, but your personal circumstances could determine that you invest more cautiously.