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Feb 8, 2017

Investment Risk: What It Is and How to Manage It

By Anneliese Klein-Pineda

An introduction to investment risk and how it can factor into your investing future.

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We take risks every day of our lives. Whether it’s crossing the street, stepping on a crack, or negotiating a salary increase; risk plays a key role in our daily decisions.

If you’re willing to take the risk of asking for a higher salary, you’re probably weighing the risk of your request with the potential reward. (That’s called risk management.) You might be familiar with risk in your personal or professional life – but what does risk mean for your investments?  

What is investment risk?

Investment risk is the uncertainty of your investment’s future returns. This includes the possibility that your future return may not match the expected return. And this mis-matching of expectation and reality could negatively affect your financial welfare.

In other words, the performance of your investment may not be as successful as you hope. If you invest $100 every month, with the goal of a $7 (7%) return, you run the risk that the return on investment may be lower (or even a negative). But remember! A low expected return in the short term shouldn’t stop you from thinking long term.

Risk and investing in ETFs

Stash investments are categorized by risk level. And when it comes to foundational investments, Stash offers diversified mixes.

Each mix has a certain ratio of stocks to bonds. A greater allocation to stocks generally makes an investment more aggressive, just as a greater allocation to bonds generally makes an investment more conservative. What’s your mix? It’s all about figuring out your own taste for risk.

Risk management: How does it relate to your Stash?

Remember those personal questions we ask you in sign-up about your age and income? We’re not just asking you because we are curious. All of this information helps us diagnose your risk profile. This is based on your financial situation and investing goals.

A risk profile combines the amount of risk you are willing to take and the amount of risk you are able to take, based on those inquisitive sign-up questions. We place investors into a conservative, moderate, or aggressive risk level, and we make available suitable investments to match. 

If you’re risk averse (aka you’re not down for that risky investing business), you may be sorted into a conservative or moderate risk level. It’s also important to note that Stash won’t show you investments that don’t match your risk level.

We take our fiduciary responsibility seriously and want you to invest according to not only your beliefs and goals, but also in a responsible way that keeps the long term in mind.

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Written by

Anneliese Klein-Pineda


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