Confirming value at risk
The 10 Dynamic Planner risk profile descriptions identify that money can be lost as well as gained on investments.
They also provide guidance on the value at risk by showing what the potential returns (adjusted for inflation to reflect the spending power of money in future) are likely to be over 1, 5 and 10 years, based on average, below average and above average performance.
Value at risk levels
Below average performance – a pattern of losses that an investor might experience only 5% of the time. They can and do happen but it would be a rare set of circumstances over the period in which the investment was held. 95% of the time you would expect the investment to perform better than this. While extreme, it is helpful to think about what would happen if these circumstances did materialise. Can you afford to take the risk?
Above average performance – a pattern of gains that an investor might experience only 5% of the time. Growth which exceeds this level can and does happen but again it would be a rare set of circumstances. 95% of the time you would expect the investment to grow at less than this level.
Average performance – the average pattern of growth that you would expect to see 50% of the time.
Put simply, 90% of the time, an investor would expect investments aligned to the risk profile to perform between the two extremes described above, with average performance being in the middle.