Diversification — balancing return with necessary risk

The return (also known as earnings, income or profit) from an investment is only one side of an investment. You also need to think of the risk of an investment — the possibility of losing your money, which many members of super funds experienced during 2008 and 2009. Some investors also count risk as missing out on a higher return on another investment.

Having money in a bank account in Australia is considered a low-risk investment, because you are unlikely to lose money, and an attractive investment for part of a person’s investment portfolio. An investment portfolio is the collection of investments a person may hold. An example of a possible investment portfolio could be, say, three high-interest bank accounts, two investment properties, and shares in 12 Australian companies listed on the Australian Securities Exchange (ASX).