In this article, we'll look at what exactly risk in investing is and how to understand it.
Please note: Chip can't provide financial advice so you may want to seek guidance from a qualified professional if you are unsure or have detailed questions around investing. Your capital is at risk
Risk Levels Explained
As a general rule: the greater the risk you are prepared to take, the greater the opportunity for returns (and vice versa), but we do encourage you to think carefully about how you're spreading your exposure to risk.
What is risk?
To put it simply, the risk-return tradeoff means that your potential return on an investment should be greater with a higher-risk investment.
What do Low, Medium and High risk levels mean?
We group investment funds into simplified risk brackets based on their industry standard Synthetic Risk and Reward Indicator (SRRI) rating. See how this is calculated below.
Our risk groups:
Low = 1 to 3 SRRI rating
Medium = 4 to 5 SRRI rating
High= 6 to 7 SRRI rating
How risk is calculated
All the investment funds offered through Chip are ranked by their SRRI of 1-7.
You can find this on the fund details page and in each fund's KIID (Key investor information document).
SRRI is determined by a complex calculation by the asset manager using industry-standard rules but is ultimately based on the assets within the fund.
Generally, if a fund contains more stocks and shares, it's considered to be higher risk but carries the potential for higher returns.
If a fund contains more bonds it's generally considered to be lower risk but potentially provides lower returns.
