Make your money risk-proof

The collapse of financing group Banksia Securities last week sent a fresh chill through all investors, and left the 3000 people owed $660 million fearful for their retirement. With the wounds of other such large-scale collapses and the global financial crisis still raw, today the worry is not so much about the return on your money but the return of your money.

And it's a valid concern. Here are five questions to ask yourself to determine whether your investments are safe:

HOW HAVE YOU INVESTED?

By which I mean, through whom? There are many benefits to investing with the aid of a financial planner - professional advice and ease being two of the biggest. But it is also planners who have placed clients in some of the more elaborate investment schemes that have gone bust - think forestry investment group Timbercorp and property financing firm Westpoint. The justification is that clients were seeking the higher returns on offer the reality is that advisers were also pocketing the higher commissions.

No one cares more about your investments than you - so it would serve you well to at least know and/or research enough to be able to double-check an adviser's recommendations. The other option is to be self-directed - make your own investment decisions - but then you wouldn't have anyone to blame!

In any case, it pays to always remember two investment axioms: never invest in something you don't understand, and if it seems too good to be true, it probably is.

WHAT IS YOUR INVESTMENT MIX?

If this question has you looking blank, an investment review is urgent. Your money needs to be spread in many ways: across asset classes (shares, property, fixed interest, cash) across regions (not solely invested in Australia) across holdings (for example, at least eight different shares) and across product and provider (in case of insolvencies, such as those mentioned).

Banksia was a non-bank lender that obtained funding by issuing the type of high-interest debentures that are enticing to retirees. Often investors don't realise these are considerably more dangerous than putting money in the bank - they are unsecured loans, the interest payments on which depend on sometimes high-risk borrowers meeting their mortgage repayments - and fall outside of the government's deposit-guarantee scheme.

This group is not the first such firm, nor I suspect will it be the last, to go belly up. To be less diversified than I've suggested above means such a bust could wipe you out.

You need to regularly review your investment mix as the value of your holdings changes.

WHEN DO YOU NEED YOUR MONEY?

Too few investors consider this - particularly when it comes to collecting investment properties and related debt. The point of any investment is to get your money and more back at the end of it, so you need an exit strategy before you even enter.

When and how will you sell? Are there trigger events with investments such as shares - broker downgrades or pre-set stop-loss levels, for instance, or return targets at which you'll happily take profits? And if there are loans involved, how will you eventually discharge them?

WHERE IS THE MONEY HELD?

Now we're talking individual investments - are yours good ones? Still? You need to conduct adequate due diligence to figure this out in the first place, and then check often that your rationale holds.

Many factors will come into this, but with shares it might be trading conditions, balance sheet strength, management direction and market valuation. These are constantly subject to change.

In the current volatile environment, wild swings in investor sentiment are also a big consideration. The days of buy and hold are behind us.

WHY HAVE YOU INVESTED?

By rights, this should have been question one - and if you'd invested through an adviser it's where they would have started.

To make sure everything else we've talked about is appropriate, you need to determine your risk profile, remembering that this could be very different to a co-investor such as a spouse. This, too, will change over time.

In the crudest form, it's how you feel about the possibility of loss. Advisers have questionnaires to determine this.

The "why" you invest is all about your ultimate goals. Investment decisions come down to balancing your risk appetite with your available time frame to achieve these goals.

It's these sometimes irreconcilable variables that cause people to invest in less-safe investments. The key is to ensure that even if you consciously do this - and Banksia investors might well have - you don't put yourself at undue risk.