Question:
What is the risk of High-Equity fund? Can I end up having less money that I deposited? For example, I put R 1,000 000 and in say 5 years I find that there are only R 800 000 left? Or let's say the amount increased with only 1% due to losses? Could this happen?
Answer:
Rye, Future investment returns are not guaranteed, and they can be low and even negative with so-called "risky" assets such as equities. This is especially true in the short term (one or two years). It is less likely, but not impossible that over five years, your portfolio return will be negative. The longer the time horizon, the less likely that the return will be negative for a high equity portfolio. Please click here for a short explanation of the long-term equity return. The following link explains how we take your investment time horizon into account - ie you are in a high equity portfolio until you are five years from retirement, then we gradually de-risk your portfolio over the last five years. If you are going to be investing for 20-40 years, then the one or five-year market outcome is not important, it only starts to matter nearer the time you plan to access your money. These investment basics are further explained in our Financial Education section.
