investment risk explained

Investing is one of the most effective ways to build wealth over time - but it isn't without risk.
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what is investment risk?

As an investor, it is essential to understand the level of risk you are comfortable with and how much investment loss you can bear.
Investment risk refers to the possibility of losing some of your investments. Every investment comes with some level of risk, which varies depending on the type of investment. For example, equities are generally considered to be riskier than bonds because their value can traditionally fluctuate more.

Risk can also be affected by factors such as interest rates, inflation and economic conditions. It is important to note that risk is not necessarily a bad thing. In fact, risk and return are often positively correlated, meaning that the potential for higher returns comes with higher risk. Investors who are willing to take on more risk may be able to achieve higher returns over the long term.

How to assess your capacity for investment loss

Assessing your capacity for investment loss is a critical step in creating an investment plan.
This process involves evaluating your financial situation and determining how much investment loss you can tolerate without needing to reduce your standard of living. Here are some steps to consider:

Evaluate your current financial situation

The first step is to evaluate your current financial situation. This includes assessing your income, expenses, assets and liabilities. You should also consider any potential sources of income or expenses in the future, such as job changes, retirement or major purchases.

Determine your investment goals

Once you have a clear picture of your financial situation, you should determine your investment goals. This includes considering your time horizon and financial planning objectives.

Assess your attitude to investment risk

Your attitude to investment risk refers to the level of risk you are comfortable with when investing. This can be influenced by factors such as your age, financial goals, and personality. Some investors may be comfortable taking on higher levels of risk, while others may prefer lower-risk investments.

Consider your investment options

Based on your financial situation, investment goals, and risk tolerance, you can then consider your investment options.

Review your investment plan

Discuss your current financial situation, objectives and attitude to investment risk with a financial planner in order to ensure that your investment plan is suitable for you.

how can financial advice help?

Financial advice can be helpful in managing investment risk in a number of ways.

Assessing Attitude to Risk

We can help to determine your attitude to investment risk and ensure that any investments recommended are suitable for you.

Managing Emotions

One of the biggest risks in investing is emotional decision-making, which can lead to impulsive or ill-informed investment decisions. We can provide an objective perspective and help you manage your emotions, which can help you make better investment decisions over the long term.


We can help monitor your investments on an ongoing basis, keeping an eye on performance and making adjustments as needed. By regularly reviewing your portfolio, we can identify opportunities to reduce risk and potentially increase investment returns over the long term.


We can help you diversify your investment portfolio, which means investing in a mix of assets across different countries, sectors and industries. This can help reduce the risk of losing money on any one investment.

Portfolio Rebalancing

As the performance of different investments in your portfolio can change over time, rebalancing involves periodically adjusting your portfolio to maintain your desired asset allocation in line with your attitude to risk.

Speak to a Financial Adviser

At Wealth of Advice, we pride ourselves on being honest and straightforward. That's why we take a no nonsense approach to financial advice, and we have over 600 happy clients who can testify to that. If you would like to find out more about your options with investing, get in touch with us.
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