Basically, the more risk you are willing to take with your investments, the greater your returns will tend to be over the longer term. If you are not comfortable with taking risks with your investments, the trade-off is that you will generally achieve lower returns.

By taking risks, this means investing in assets that are considered to be ‘riskier’ ie shares and property.

The graph below illustrates the change in value of $10,000 invested in March 1980 to March 2003. The money is invested across the four major asset classes and as can be seen, international shares increases the $10,000 by the greatest amount – though the investor has experienced a great deal of fluctuation in returns over that time.

On the other hand, international fixed interest (bonds) and Australian cash have generated smooth returns – yet increased the $10,000 by the least amount.



Source: http://www.vicsuper.com.au/investments_asset_perform.asp
Assumptions
This graph is based on a single investment of $10,000 made in March 1980 and shows the growth in the value of that investment due to investment returns since that date. It does not take into account withdrawals, fees and taxes. Figures for International Shares and International Bonds are unhedged. Figures for this graph were provided by JB Were Quantitative Research.