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Investment Insights

Why should investors consider risk, before reward?

Kiwi Invest

Written by Kiwi Invest

Keeping you up-to-date with all the latest updates at Kiwi Invest.

Wednesday 28 August, 2019

Putting risk, before reward? That's smart.

While our industry tends to focus only on reward... we believe that a strong investment strategy starts with a careful and up front evaluation of risk. For trustees and directors, making investment decisions on behalf of their organisations and beneficiaries, it’s even more vital to ask the right questions about risk – and have clarity on how to measure it.

 

DETERMINING YOUR INVESTMENT 'RISK BUDGET', COMES DOWN TO TWO KEY QUESTIONS:

risk_capacity

WHAT DOLLAR AMOUNT, COULD WE AFFORD TO RISK LOSING – WHILE STILL MEETING OUR OBJECTIVES?

The answer to this question should be an objective, rational ‘hard number’ – based on financial realities.

risk_capacity

WHAT DOLLAR AMOUNT, ARE WE WILLING TO RISK LOSING – IN ORDER TO MAXIMISE OUR POTENTIAL RETURNS?

The answer to this question is a critical one for organisations such as charities – who need to manage a wide range of stakeholders, maintain a positive public and fundraising ‘brand’, and respect the interests of donors, founders, and beneficiaries.

(Both answers also need to recognise, that without risk, there is often limited reward – and an overly conservative strategy, that fails to outpace inflation, can be a significant risk for charities over the longer term).

 

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