Risky business? How much of a gambler are you with your savings? Here's how to choose investments that match your tolerance to risk. (Money: investment risk).

Publication: Choice (Chippendale, Australia)

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COPYRIGHT 2002 Australian Consumers' Association

You've saved a nest-egg and now you're thinking about where to invest. Can you afford to lose some of the money you've saved? If your answer is `no', you probably shouldn't take too much risk with it. What kind of investor are you and where should you put your money?

WHAT'S RISK?

`Investment risk' is exposure to the chance your financial expectations won't be achieved. No investment is risk-free. Depending on the investments you choose, there's a chance they could:

* Make less money than you expect or need.

* Make a loss, leaving you less capital than you started with.

* Earn less than alternative investments.

* Fall behind inflation so your buying power is reduced.

* Be performing poorly at a time when you need to sell.

* Not live up to a good past performance within your investment timeframe.

* And of course one major risk of investing in anything at all is the chance that the institution could go belly up (HIH and One.Tel are recent examples). You'd have to line up with all its other creditors in the hope of getting at least some money back.

Other risks are related to your overall investment strategy -- the way you structure your `portfolio'. Examples include:

* Borrowing money to invest (`gearing') has some inherent risks. The ultimate goal is for the investment's value to grow to a point where you make a profit after you've repaid the loan and covered your expenses. The main risk is that the investment will lose value, so your debt isn't covered if you sell it. See our article on Margin loans, October 2001, for more information.

* Investing overseas: Exposes you to rises and falls in the value of the currency your investments are held in compared with the Australian dollar, as well as to the inherent risk of the investment itself.

* Personal changes: Your personal circumstances will probably change regularly through life, and your tolerance to risk may change as a result. For example, when you're young with no dependants, you can afford to take more risks than if you have dependent children or you're getting close to retirement. You'll have to review your investment mix regularly to make sure it still matches your attitude to risk.

A MATTER OF TIMING

Investment markets move in cycles and -- obviously -- the idea is to buy when prices are low and sell when prices are high. The safest way to end up with more money than you started with is to hold on to your investments for the long term,...

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