Understanding Risk and Return

Risk is the probability, or chance, of the loss of some or all of the money an individual invests. The return comprises the income and the capital gains. There is a rule of thumb that states, when there is a higher probability of lossthere is high potential return on an investment. This does not necessarily mean that higher risk equals higher returns as the probability of the higher return may be low.

The management of risk can be very complex but it all comes back to how much loss can the individual tolerate and what combination of investments maximises the potential return while keeping risk at a minimum. Trained, licensed individuals can assist to assess that.