- Suitable for investors with a higher risk tolerance.
- Better for longer time horizons.
Moderate risk doesn’t mean what many investors probably think it does. It’s hard to label this type of strategy, which is bolder than running a ‘balanced’ portfolio but more conservative than an ‘adventurous’ one. Asset Risk Consultants (ARC) counts portfolios that fall between those two stools as “Steady Growth”, but we’ve called them ‘moderate risk’.
ARC bases its classifications on the risk of a strategy compared to equity risk: for example, portfolios that are 60-80 per cent as risky as equities are sorted into the Steady Growth bucket. Considering the MSCI World index fell 55 per cent in the global financial crisis, this implies that investors should be psychologically prepared for drops of roughly 30-40 per cent in portfolio value when times are bad.