Investment risks
Each Cbus Investment option has a level of expected risk.
|
|
Cash Savings |
Conservative |
Growth (Cbus Choice) | |
|---|---|---|---|---|
|
Likelihood of negative annual returns in 20 years |
Negligible |
Less than one in 20 years |
2.5 in every 20 years |
4 in every 20 years |
|
Risk Level |
Very low |
Low |
Medium |
High |
|
Risk Band |
1 |
2 |
4 |
6 |
The risk level is based on industry-wide Standard Risk Measure, which relates to the number of expected negative annual returns over a 20 year period. The Standard Risk Measure ranges across seven Risk bands, from 1 (very low) to 7 (very high risk).
The Standard Risk Measure allows members to compare investment options that are expected to deliver a similar number of negative annual returns over any 20 year period.
It is not a complete assessment of all forms of investment risk. For instance, it does not detail what the size of a negative return could be or the potential for a positive return to be less than a member may require to meet their financial objectives. Further, it does not take into account the impact of administration fees and tax on the likelihood of a negative return. Members should still ensure that they are comfortable with the risks and potential losses associated with their chosen investment option or options.
| Risk Band | Risk Label | Estimated number of negative returns over any 20 year period |
|---|---|---|
| 1 | Very low | Less than 0.5 |
| 2 | Low | 0.5 to less than 1 |
| 3 | Low to medium | 1 to less than 2 |
| 4 | Medium | 2 to less than 3 |
| 5 | Medium to high | 3 to less than 4 |
| 6 | High | 4 to less than 6 |
| 7 | Very high | 6 or Greater |
Cbus' process for establishing the level of expected risk
Cbus conducts an annual review of investment strategy. As part of this review, Frontier Investment Consulting (Frontier) reviews the returns, risk and the likelihood of negative returns for each major asset class each year. Frontier also reviews the relationships between asset classes and their returns (correlations).
A model is used which combines the return, risk, and correlation assumptions, together with Cbus' strategic asset allocation weights to determine expected total portfolio risk and return characteristics. The likelihood of a negative return is calculated from the portfolio risk and return estimates.
Asset type risk and return characteristics
Click here for information about Asset Type and Risk / Return characteristics.
