Financial planning

How much risk can you handle for a good return on investment?


Growing wealth is a key step in securing your future. So what your retirement looks like may depend on the type of wealth creation plan you have in place. In this interview, Certified Financial Planner Dianne Charman discusses investments, risk and what is considered to be a good return on investment.

According to AMP Financial Planning experts, growing your wealth may be achieved in various ways, such as via a well-diversified investment portfolio. Investments can be broadly grouped into two categories: defensive assets (like cash and fixed interest) and growth assets (like shares and property).

However, every investment carries with it some element of risk. Risk is what you take on in exchange for achieving an adequate return on your investment.

How much risk can you handle for a good return on investment?

A number of factors affect the amount of risk that you are willing to tolerate—often your risk profile. These factors include:

  • the rate of return you require to meet your objectives
  • your investment timeframe or stage in life
  • your personality.
  • AMP Financial Planning experts believe that in order to put in place an effective wealth creation plan, you need to understand what type of investor you are.

    Are you an aggressive investor with a relatively long investment time frame? Or are you a little more conservative, with a shorter period of time to build your wealth? Or perhaps somewhere in between?

    The proportions that you allocate to different defensive and growth assets will depend on your risk profile. As you allocate more money to growth assets, the expected return increases, however the volatility associated with the portfolio increases also.

    “What we’re expecting from the behaviour of these investments in the growth phase, is volatility,” said Dianne

    “Believe it or not, it is your friend, because volatility means the markets are moving and we can make money and growth,” said Dianne.

    Building wealth is generally a long-term proposition

    Rather than focusing on short-term up and down market fluctuations, Dianne Charman recommends investors consider the “on average” return on investment.

    “We have to work out, what “wobble” can you handle in the markets (your risk profile) and then we can work out, are you going to achieve your goals if you don’t get those investment returns,” said Dianne.

    “If I’m taking a whole bunch of risk, I expect better returns,” said Dianne.

    For more about investing from AMP

    *Dianne Charman is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
    Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.

    About Dianne Charman

    Dianne Charman believes in empowerment through knowledge. Building confidence in your financial world. With over 20 years’ experience in the Financial Planning profession, and over 10 years as a practicing Certified Financial Planner, Dianne’s specialist qualifications include Self-Managed Superannuation Funds and Direct shares. She has also held senior roles in funds management, insurance, superannuation; and now is the Director of Jade Financial Group. A family orientated business, working hard to provide Clients with, honest, long term financial advice in order to turn their goals into reality.
    In 2010 Dianne founded the Jade Kids Foundation – a not for profit organisation helping our next generation to make better money choices for a secure financial future. Dianne is a proud member of the Association of Financial Advisers (AFA) and in 2012 and 2013 was a Finalist in the AFA Female Excellence in Advice Award. Now Dianne sits on the board as the AFA’s Queensland Director, helping to provide its members with a voice and to continually improve practices. Particularly, Dianne is committed to improving Financial Literacy and leads the AFA Financial Literacy Working Group on important issues for women and our elderly.

    Balance Team

    This article was written by the brains trust of Balance . We are a talented team of writers and contributors with real life experience and a passion for finding balance.

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