Understanding and managing risk

Risk Profiles

The level of investment risk that people are comfortable with differs from person to person. It also generally varies with life’s circumstances and your financial status. Some general risk profiles include:

Aggressive investors are looking for above average performance and will generally be prepared to accept above average risk to achieve this. As a result, this kind of investor may take a long term view (seven years or longer) and invest predominantly in growth assets, such as shares, property and infrastructure. The level of risk increases as the proportion of growth assets increases.

Conservative investors seek greater security of their capital and therefore tend to focus on an investment’s risk and return potential over the short term. As a result, they usually prefer to invest in lower risk investment options, which include a significant allocation to conservative assets, such as cash and fixed interest.

The risk of an investment is measured by the likely fluctuations (that is, rises and falls) and in returns (earnings on your investment). In general, the higher the expected returns, the higher the risk associated with the investment.

Understanding the Risks

It is important to understand the following points:

  • Your IRIS pension may not last the rest of your life.
  • The value of investment options can rise and fall – your return is not guaranteed.
  • If the investment options you choose aren’t right for you, you may not achieve your goals. A financial planner can help you choose the investment options that suit your needs.
  • Laws (such as taxation and social security) affecting your IRIS pension may change in the future.
  • In certain circumstances, we may have to delay retirement income payments, switches or withdrawals.

Investing carries varying degrees of risk, depending on the nature of the underlying investments and the approach taken to achieve the stated objective of the investment option.

With any retirement income product, there is also the risk that your account will be exhausted prior to your death (longevity risk).

Before deciding which investment option is appropriate for you, it is important to consider how much you are prepared to accept fluctuations in your investment returns.

You should be aware there is a direct relationship between the risk that you choose in your investments and the return you will receive.

Asset classes

Asset classes are categories of investments that offer differing levels of overall risk and return. All IRIS investment options (except the IRIS Cash Option) have investments in at least two different asset classes. Understanding what to expect from the different asset classes will help you decide which investment option(s) best suit your needs.

Below are the four main groups of asset classes used in IRIS:

Asset class What's included
How investment earnings are generated
Asset type Risk profile
Shares Shares or other securities listed on Australian and international stock exchanges.
From dividends and changes in the market price (capital value) of the shares.
Aggressive (High)
Property Direct property (e.g. commercial, industrial and retail property) and indirect property (property trusts that own portfolios of real estate).
Rental income and changes over time in the capital value of the property held (either directly or indirectly).
Aggressive (High)
Fixed Interest
Loans to borrowers such as governments, semi-government corporations and private corporations. In return for the loan, the borrower generally pays a pre-determined rate of interest for an agreed term.
Interest earned on the loans (income), and movements in the capital value of investments caused by movements in interest rates.
Conservative (Low)
Cash Bank deposits, cash management trusts and money market investments (e.g. very short term bonds issued by high quality companies or by governments) that can be converted to cash very quickly.
Interest earned (income).
Conservative (Low)

The information provided on this page is of a general nature only. It has been prepared by IFS without taking into account your personal objectives, financial situation or needs. You should assess your own financial situation and obtain independent financial advice before making any investment decisions or taking any action based on the limited information available on this website.


Last updated on 1st September 2016