Understanding and managing risk

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.

It is important to understand the following points:

Your IRIS account may not last the rest of your life.
The investment options will rise and fall in value – they are not guaranteed.
If the investment options you choose aren’t right for you, you may not achieve your goals.
Laws (such as taxation and social security) affecting your IRIS account may change in the future.
In certain circumstances, we may delay income payments, switches or withdrawals.

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. Generally, there is a direct relationship between risk and return. As returns increase, the risk taken in achieving that return also increases. Compare the investment options and their risk levels.

We recommend that you talk to a financial planner about the type of investment strategy that best suits your personal needs.

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 each. 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:

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.	Growth	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).	Growth	Moderate
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.	Defensive	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).	Defensive	Conservative (Low)