Investment risk

All investments involve an element of risk. Risk can be described as the uncertainties both for loss and growth that may affect the value of an investment. Some of the things that may cause a fund’s value to move up and down are market risk, investment return risk, currency risk and liquidity risk.

Market risk From time to time, market conditions will materially and adversely affect the scheme’s investments. Risks related to market conditions include movements in the general price level of an investment, changes in demand and supply in the market or sectors in which an investment is made and changes in political, economic and regulatory conditions.
Investment return risk Investment assets offering the highest expected long-term returns also carry with them the highest risk. Those investment options in the scheme that have more growth assets (such as shares) are likely to be more risky, and those that have more income assets (such as fixed interest and cash) are likely to be less risky.
Currency risk Some of the scheme’s investments are made in currencies other than New Zealand dollars. While currency fluctuations can affect returns positively, there is also a risk they can affect returns negatively.
Liquidity risk This is the risk that the scheme may not be able to meet its monetary obligations in a timely manner. This would arise if we are unable to cash up investments in time to pay benefits to members or meet other financial obligations.