How We Manage Risk

designbythink 2018, Quarter 2 Newsletter 2018

HOW WE MANAGE risk

there is an implicit relationship between risk and expected return. It is not practical to eliminate all risk, as this will limit the Fund’s ability to earn a good investment return.


As a member of the Fund you are an investor. It is important to be aware that there is risk involved in all investments.

Since we can’t eliminate the risks of investing, it is important to manage the risk.

There are two ways in which we can manage the risk of being exposed to the market:

1

Diversify the Fund’s investments

This means that the Fund is invested:

  • across different kinds of assets
  • and, within each type of asset, across many different companies.

This prevents your investments from being exposed to the impact of a significant drop in the value of one particular investment.

Effective diversification is the responsibility of your Fund’s Board of Trustees, supported by the Fund’s expert advisors, and is taken very seriously in setting the Fund’s investment strategy.

2

Stay invested for the long term

Over the long term, the shorter-term ups and downs of the market will tend to even out and you will be left with a reasonable return for the risk you have taken.

By doing this, you avoid the risk that so many investors fall prey to – making investment decisions in response to hype, whether positive or negative, instead of in response to expert research.

What you can do

We have already established that investing or withdrawing investments in response to hype is a bad idea, so you must keep a cool head and make rational decisions. It is best to remain invested for the longest possible amount of time.

Stay patient and focused, and you will see your retirement savings grow.

The market will experience some ups and downs in the short term, but you can be assured that this is a natural path for the market to follow.

Keeping your retirement savings invested with the Fund protects you from the worst of the market swings over the long term.

How do investments work?

On the most basic level, when you invest your money, you make it available for someone else to use for a period of time. This involves some risk, for which you get rewarded in the form of interest.

What are interest rates?

Interest rates represent the cost of borrowing money, on the one hand, and a basic level of reward for lending money, on the other. The level of interest rates is an important factor that drives economic activity, and therefore, investment markets.

EXAMPLE:

When the cost of borrowing is low, then more business projects become economically viable. The higher the cost of borrowing, the fewer the business projects.