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Your attitude to risk is one of the most important factors to consider when it comes to investing.
This is because growth assets, like shares and property securities, tend to have more volatile returns over the shorter term but they do have the potential to produce higher long-term returns.
Assets like bonds and cash are considered lower risk and less volatile but they generally do not have the same potential for similar high returns over the long term.
Understanding whether you have an appetite for risk and where you are on the risk spectrum is often the first step on an investment journey.
Your timeframe is just as important as your attitude to risk.
In general, the longer you plan to invest, the more capacity you have to include growth assets in your portfolio. That’s because market ups and downs tend to even out over time.
For example, international shares can deliver very strong returns in some years but they can also fall sharply in others. Over longer periods, however, the range of outcomes typically narrows, as periods of strong and weak performance balance each other out.
This is why your investment goal matters. Money you’re setting aside for a short term goal, such as a home deposit you’ll need in three years, usually calls for a more conservative approach. There’s less time to recover from a market downturn.
By contrast, funds you’re investing for a long term goal, like retirement in 30 years, may be better placed in a higher growth portfolio because time is on your side.
Different asset classes have delivered very different outcomes over time. Looking at how returns have varied over one, five and ten year periods can show how wide the range can be in the short term, and how those extremes tend to narrow over longer timeframes.
Multi-asset or diversified funds are designed to align with different investor risk profiles. These funds invest across a mix of growth and defensive assets, with the balance adjusted according to how much risk an investor is willing to take.
Vanguard Diversified Funds are an example of this and offer a range of options with different mixes of assets.
The key difference between these funds is how much they allocate to growth assets such as shares and property versus defensive assets like bonds and cash. This mix has a significant impact on both potential returns and how much a portfolio’s value may fluctuate over time.
For instance, a high growth option has a much larger allocation to growth assets. It’s designed for investors with a higher tolerance for volatility and a long investment timeframe and who are focused on growing their wealth over time.
On the other hand, investors who want more stability during market downturns may be more comfortable with a conservative or balanced option, where a higher allocation to defensive assets can help soften market falls.
It’s worth remembering that taking no risk at all can carry risks of its own.
Keeping all your money in cash may feel safe, but overtime, inflation and costs can erode your purchasing power, meaning your money buys less in the future than it does today. For long term goals, this can be a significant consideration.
Vanguard
27 May 2026
vanguard.com.au
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