A guide to investment risk

Mention investment risk and people will often get the heebie-jeebies. This is perhaps not surprising given that the definition of risk is "a chance of danger, loss, injury or other adverse consequences". This is also why, when it comes to investment, many people associate the term risk with losing money.

However, simply associating risk with doom and gloom is a generalisation – and a misconception. Risk in the investment world can ultimately be positive if it is managed in the right way. Managing risk allows charities to expose their portfolio to assets that may generate a return above the traditionally perceived lower-risk assets such as cash. And it does so in a way that helps them meet their financial objectives while protecting the interests of the charity.

Trustees should be prepared to take on some investment risk – simply sitting on cash has its risks too and you’re likely to need to invest in other asset classes to meet a charity's objectives. However, trustees must be satisfied that the overall level of risk they are taking is right for their charity and its beneficiaries.