Being risk averse is a sensible and frugal approach to investing, but this sensible option could eventually cost the investor a sizeable amount of money and may leave the individual despondent and with less opportunity to create a healthy pension or retirement fund.
There is a time to be risk averse, and this is usually as you near retirement age when you have more to lose in a number of different ways, but there is also a time to increase the level of risk that you are willing to face.
Wealth managers like Sanlam Private Investments will typically ask their clients a series of questions, or discuss their current situation, to determine their level of risk aversion. If you are building your own portfolio, moving your pension fund, or even if you are considering going it alone or using a wealth manager to help improve your pension investment, then you can ask yourself similar questions.
If you are working, what would happen if you were to lose your job? Would you still be able to survive, and would you still be in a position to be able to continue investing and hold on to your existing investment portfolio? What would happen if you got divorced, if you became ill, or you had to help pay for care for your parents?
If these types of life changes would have a significant impact on your financial situation and your investment then you are likely to be highly risk averse. If you have multiple streams of income, do not rely on your salary as your primary moneymaking opportunity, and any major changes would not have a life changing effect, then you may be more open to risk.
Pension Fund Security
If you have all of your money placed in real estate, all stored in a bank, or the majority of it in a single stock or even fund, then you are exposing your pension fund to a degree of risk, and you may want to consider looking for ways in which to mitigate some of this risk. Diversify your portfolio, protect your wealth, and look for other ways in which you can invest. Also consider how secure your company pension is.
Some people are naturally more inclined to take risks, with the hope of greater returns, than others. If you are 40 years away from retirement, then some risk is certainly acceptable, but if you are about to convert your investment into a pension, then minimising risk is important to protect what you have. Wealth management means determining how much risk you face, how much you are willing to face, and how to take appropriate steps to achieve this level of risk and potential reward.