R100 today does not hold the same value forever. Over time, inflation quietly reduces what your money can buy, even if the amount in your account stays the same or grows slightly. This is why simply saving money in a low-interest account can feel safe but still leave you worse off in real terms.

If your money doesn't grow faster than inflation, its buying power slowly shrinks. That means the goal of investing isn't just to protect your capital, but to grow it at a rate that keeps up with or exceeds rising prices. This is where risk becomes an important part of the conversation.

Understanding investment risk

Investment risk refers to the possibility that your investments could fluctuate in value or deliver returns that are lower than expected. These changes can come from many sources, including economic shocks, market uncertainty, political events, or global crises.

Some risks are short-term and sudden, like market crashes, while others build gradually over time, like inflation or changing interest rates. Importantly, risk is not always negative. In investing, higher levels of risk are often linked to the potential for higher returns over the long term.

Why risk and returns move together

A key principle of investing is that safer options usually offer lower returns, while investments that carry more uncertainty tend to offer the possibility of higher growth. For example, cash-based savings products are typically stable and predictable, but their returns are often not strong enough to outpace inflation over long periods.

On the other hand, investments that fluctuate in value can feel uncomfortable in the short term, but they are more likely to deliver meaningful growth over time. The challenge is finding the balance between protecting your money and allowing it to grow.

Different levels of investment risk

Investments are generally grouped into 3 broad categories based on how much their value tends to change over time:

• Low-risk investments
  These include cash deposits and government-backed instruments. They are highly stable and predictable, but they usually offer lower returns. They are often used for short-term goals or capital protection.
  
  
• Moderate-risk investments
  These include corporate bonds, property funds, and diversified unit trusts. They offer a balance between stability and growth, with returns that tend to be more consistent than high-risk options.
  
  
• High-risk investments
  These include shares, hedge funds, venture capital, cryptocurrencies, and other specialist investments. Their values can rise and fall sharply, but they also offer the highest potential for long-term growth.

Why inflation changes everything

Inflation is the benchmark that determines whether your money is truly growing. To maintain the value of R100 today, your investment needs to grow to match rising prices in the future.

For example, if inflation averages around 4% per year, R100 would need to grow to roughly R150 in 10 years just to maintain its buying power. Over longer periods, the required growth becomes even more significant.

This is why low-risk investments alone may not always be enough for long-term goals. If returns fall behind inflation, your money may grow in nominal terms but lose value in real terms.

Spreading risk through diversification

Rather than choosing a single type of investment, many investors combine different levels of risk in one portfolio. This approach is known as diversification.

By spreading money across low-, moderate- and high-risk investments, you reduce the impact of poor performance in any one area while still allowing part of your portfolio to grow more aggressively. Professional investors use this principle to manage uncertainty and create more stable long-term outcomes.

Risk changes over time

Investment risk is not static. It often makes sense for younger investors to take on more risk because they have time to recover from short-term market downturns. However, as you approach major financial milestones like retirement, reducing risk can help protect the value you've built over time. Shifts in your risk appetite are not about avoiding risk entirely, but about adjusting it to match the stage of your life and your changing financial goals.

Some risks are worth taking

The table below shows the impact that different risk profiles and returns have on an investment of R100. This is for the purpose of illustration only – these examples use average returns you could expect from high-, moderate- and low-risk investments. Our example assumes that you reinvest dividends (payments) and doesn’t factor in inflation. This will hopefully help you understand risk better, especially its relationship with investment returns and your life stage and goals.

To summarise, R100 invested over 30 years could amount to the following sums:

• 5% return:         R432.19
• 9% return:         R1,326.77
• 15% return:       R6,621.18

Remember, this is a hypothetical example and does not reflect actual returns on a specific investment. However, it highlights how a difference of even a few percentage points can have a significant impact over long investment periods. Investment risk is not something to avoid, but something to understand and manage. When used correctly, it becomes a tool that helps you balance security with growth. The goal is not just to protect your money, but also to ensure that it continues to grow in a way that supports your future lifestyle and financial needs.