Investment – No Risk No Fun?
An important principle in the field of investment goes like this: There is no such thing as the best investment, there is only a broad, widespread diversification. Nobody can say for sure which investment will turn out to be the best one and yield the highest returns.
If we take a look at history, we may realize that there have always been crises in the past, about which the media has frequently reported. With every crisis, however, an opportunity arises. The Chinese word for crisis demonstrates this beautifully as it consists of the two characters 危 and 機, which mean “danger” and “chance”.
危機 [wij ji]
Danger makes us more alert and shows us how important it is to ask questions, inform ourselves and take responsibility. We are provided with the chance to identify future trends and adjust our investment accordingly.
Every investment option has its chances and risks. Even when you don’t invest your money, you risk losing purchasing power due to inflation. Since the financial crisis of 2008, we are faced with the additional challenge of many countries amassing debt to keep their current monetary system up and running. This situation poses various new risks that we are not able to predict yet.
This has the following consequences for your investment: Out of many different investment opportunities, you need to pick the ones you like and that fit into your investment profile.
Summary Risk Indicator (SRI)
Investment is an opportunity to grow your money. An investment’s chances need to be weighed against its risks. A point of reference to approximately assess the risks of an investment is provided by the Summary Risk Indicator (SRI). The SRI has seven different levels, ranging from 1 (= low risk) to 7 (= high risk).
In contrast to its predecessor, the SRRI (Synthetic Risk and Reward Indicator), the SRI considers volatility (= market risk) and issuers (= credit risk) and is more future-oriented. Information on a fund’s SRI class and its specific characteristics can be found in the Key Information Document (KID).
As described in the chart, 1 corresponds to very low risk and 7 to very high risk. This does not mean, however, that you must never choose a class 7 fund since the term of your investment plays a vital role in its success.
Investing is a question of time and volatility: A long-term investment’s volatility can be higher than a short-term investment’s. Even if there are bumps in the road over the term, it may still outperform other investments in the end. If you plan to make a long-term investment, you can be willing to take higher risks. After all, the higher the volatility and risk, the higher the possibility of reward.
