Why investing feels emotional

Investing can trigger strong emotions — even experienced investors worry about market ups and downs.

Successful investing starts with understanding your attitude to risk and your financial goals.

  1. What is a Risk Profile?
  • A Risk Profile measures your willingness and capacity to take investment risk,
  • There are six main profiles, each with its own balance of risk and return.
  • Your adviser uses your profile to guide asset allocation across different types of investments,
  • Based on data and research, these profiles match typical long-term returns and volatility expectations.

2.  Asset Allocation Basics

  • Asset allocation means spreading your money across different asset classes such as:
  • Defensive Assets: Cash, Fixed Interest
  • Defensive Assets provide income (interest/dividends), have lower returns, and protect capital
  • Growth Assets: Shares, Property, Alternatives/Infrastructure
  • Growth Assets aim for long-term capital growth, are more volatile, higher potential returns and can outperform inflation over time

3.  Risk and Return

  • Return is your investment reward — income or capital growth.
  • Risk is the chance of losing money (temporarily or permanently).
  • Higher risk = higher potential return.
  • The key is to match your comfort level with the right mix of assets.

Main types of investment risk:

  • Inflation Risk: Returns may not keep up with rising costs of living.
  • Investment Risk: Returns may be lower than expected or lead to capital loss.
  • Volatility Risk: Short-term fluctuations in value — staying invested helps smooth these out.

4.  Diversification: Your Safety Net

  • Don’t put all your eggs in one basket,
  • Spreading investments across different assets, sectors, and countries helps reduce risk.
  • No one asset class is the top performer every year — history shows performance rotates.

5.  Time in the Market Matters

  • Staying invested over time generally produces better results than trying to “time” the market.
  • Over the past 25 years, all major asset classes have grown, despite short-term dips.
  • Diversifying across multiple asset types helps smooth returns and reduce volatility.

6.  Understanding Volatility

  • Two main kinds of volatility:
  • Value Volatility: Short-term fluctuations in the price of growth assets like shares.
  • Return Volatility: Variations in income — especially relevant for retirees relying on investment income.

7.  The Six Risk Profiles
Profile Growth / Defensive Split Suggested Time Frame Typical Return Range (10 yrs) Risk Level
– Conservative 15% / 85% 3 years 2.2% – 6.3% Very Low
– Moderately Conservative 30% / 70% 3 years 2.0% – 7.5% Low
– Balanced 50% / 50% 5 years 1.4% – 9.7% Moderate
– Growth 70% / 30% 7 years 0.7% – 11.8% High
– High Growth 85% / 15% 9 years 0.1% – 13.5% Very High
– Aggressive 95% / 5% 10+ years -0.3% – 14.6% Very High

Tip: The higher your growth exposure, the higher your potential return — but also the greater chance of short-term losses.

8.  Final Takeaway

  • Every investor is different — your time horizon, goals, and comfort with risk all matter.
  • A diversified portfolio aligned to your risk profile helps manage volatility and grow wealth over time.
  • Work with a financial adviser to regularly review and rebalance your portfolio.

General advice disclaimer / General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC Wealth accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose