Managing risk

Assessing your risk

When you trade, it’s very important to assess the level of risk you can realistically take on.

Once you've assessed the risk, you can then calculate the amount you want to put into your various investments. Different forms of investment have different levels of risk, so a balanced portfolio should resemble a pyramid in its shape.

The investment risk pyramid

After you’ve decided how much risk you can take on, you can use the investment risk pyramid to band your assets into streams according to their level of risk. The less risky products sit at the wider base of the pyramid, forming the basis – and bulk – of your portfolio.

Here’s a basic example of an investment risk portfolio.

Of course, the pyramid acts as a guide rather than a set of rules. Some investors take on more risk than others, so you’ll need to think carefully about your risk preference. Think about the amount of time and money you have to invest, and the level of return you want to achieve.

To learn more about ways to define your investment goals, see our developing a trading plan module.