Superannuation Investment Risk and Return
Each asset class has a different expected risk and return profile. Return refers to the profit or money you make while invested in a particular asset. Risk is the possibility of losing part or all of your money. The variation or volatility of the returns of an asset is generally accepted as an appropriate measure of the risk associated with that asset. That is, the more an asset's return varies (rises or falls) over a period of time, the greater the risk associated with that asset.
As the graph above shows, investments with the highest expected returns also tend to carry the highest level of risk. In this context, ‘risk' means not only that your returns might be variable (or volatile), but that you might also lose part or all of your investment.
Historically, property and equities have shown greater volatility in the investment returns earned over short periods of time. This means there can be a significant difference in the returns you will receive from these asset classes from year to year.
Cash and fixed interest tend to provide more stable returns from year to year. However, this lower volatility generally provides a lower return than property and equities over a five-year period.
