Much is written about diversification, from Buffet’s quote that scoffs at it, through to modern portfolio theory. Risk management goes beyond diversification of asset classes to the choice of investments in each. Risk spans a spectrum of improbable loss to a very real possibility of total loss.

Investment markets cover a range of asset classes that have varying volatility and accordingly risk all, with diverse long term returns. Broadly, markets are categorised as cash (including deposits, fixed interest and bonds), property and shares. Ideally, the appetite for risk and reward is captured in the diversification, or lack of, in an investment portfolio.

A trade-off is often required between your comfort with financial risk and the financial risk required to achieve your goals. Calculators are available to help assess where you currently stand, such as the MLC Retirement Savings Gap Calculator.

Individual choice of risk profile is balanced by market returns with percentage differences significantly impacting long term outcomes. Deciding your balance of risk and reward can be intuitive. Additionally, questionnaires are available to help assess your risk tolerance, such as from Colonial First State.