Risk classes How to correctly assess the risk of investments and funds in 2026 

One thing is for sure – every investment involves a certain element of risk. In most cases, higher risk mean greater potential returns – but this also increases the risk that the investment will not pay off and that your invested money will be lost.

Of course, the risks of individual investment products do not follow the principle of chance, but can be assessed and categorised using risk classes. As an investor, you can thus gain a better overview of which investments are suitable for you and which ones would exceed your personal risk tolerance. 

In this article, you will find all the information you need to better assess your own risk profile - regardless of whether you invest in classic securities funds or in tangible asset funds such as open-end real estate funds and ELTIFs.  

What are risk classes?

Since the enactment of the WpHG (German Securities Trading Act), financial service providers are legally obliged to review the extent to which their investment proposal is appropriate and suitable for customers. In order to make this review as universal as possible, financial products are categorised in different risk classes in order to provide investors with sound investment recommendations.

To a large extent generalisable because the respective classification of securities, funds and other financial products is carried out individually by each bank - so far there is no uniform classification.

For this reason, various models are used to categorise investment risks: For example, the risk classes of funds can be classified using the SRI (Summary Risk Indicator), which has been mandatory since 2023 under the PRIIPs Regulation and summarises market and credit risk on a scale of 1 to 7. 

That’s why it’s worth looking at risk classes

The development of risk classes has created a tool that enables financial advisers to quickly and effectively assess the financial products they offer.

However, risk classes can also be helpful for private investors who want to inform themselves independently about the risks of funds, equities, etc.:  

For example, if you tend to be a more cautious investor, you can quickly and selectively eliminate financial products from the higher risk classes and look at investments more focused on safety.

Likewise, risk classes can also help you if you want to achieve the highest possible returns and are not afraid of greater investment risks – in this case, investments in lower risk classes are probably not for you.

Depending on the investment objective you are pursuing or your risk appetite, A look at the different risk classes of traditional investments can help you approach an appropriate investment strategy. You can find out how to do this here.

The 7 risk classes for evaluating investments

Most conventional investments, from fund investments to equities and derivatives, can be classified into seven different risk classes. These classes range from a low number and low risk to the highest number and highest risk.

At the same time, the categorisation of an investment product into the corresponding risk class is also closely linked to the respective return expectation – the lower the risk, the lower the potential return.

Risk classes were therefore based on the well-known magic triangle of investments: The triangle allows any investment product to be placed between the three dimensions of security, returns and liquidity; no investment has all three characteristics at the same time. When considering the risk classes, the focus is particularly on the two aspects of returns and safety.

Is there a risk class 0?

Although some financial product providers play with this term and thus want to create the impression of a zero-risk investment, the term risk class 0 is misleading - and unfortunately simply incorrect. No matter how low the risk of some investment products, there is always a residual risk. However, this does not mean that you, as a security-oriented investor, have no place on the financial market - even financial products in risk classes 2 or 3 are a good place to get more out of your money and at the same time do not have to take large risks of loss.

Why a higher risk class does not always mean a higher return

Yes, higher risk classes give you the opportunity of higher returns. At the same time, however, there is also an increased risk that these positive potential returns may become negative and result in losses for you. The potential of higher return expectations for your investment can therefore develop both positively and negatively – the higher the risk, the faster the investment can become a loss.

SRI (Summary Risk Indicator) risk classification of funds

Since 2023, the risk class of investment funds and other packaged investment products has been reported uniformly via the SRI (Summary Risk Indicator). It is included in the Key Information Document (KID) that each provider is required to provide under the PRIIPs Regulation.

The SRI classifies a product on a scale of 1 to 7 and combines two components: market risk (MRM), calculated from the volatility of returns over the recommended holding period and credit risk (CRM), which assesses the creditworthiness of the provider or guarantor. Whereas the former SRRI only took into account historical price fluctuations, the SRI also takes into account the issuer’s default risk.

Even a low SRI does not mean a risk-free investment. It describes the risk of holding over the recommended period. Those who sell earlier can lose significantly more. The current key information document of the respective fund is always the authoritative source.

Important to distinguish: The 7 bank risk classes described above are assigned individually by each bank and are not uniformly standardised. The SRI, on the other hand, is binding across the EU and applies exclusively to PRIIPs, i.e. packaged investment products such as investment funds, ELTIFs or fund-linked insurance. Both systems use a scale from 1 to 7, but classify according to different rules. n years.

The values correspond to the MRM classes according to Annex II of Delegated Regulation (EU) 2017/653. The final SRI result results from the combination of market risk (MRM) and credit risk (CRM); the CRM can also move the SRI class up one level.

A concrete example: The hausInvest open-ended real estate fund and the klimaVest ELTIF are currently classified as SRI 2, while the infraVest infrastructure ELTIF is classified as SRI 4. The different values reflect the respective investment strategy. Commercial real estate and long-term power purchase agreements typically fluctuate less than an infrastructure mix with different sectors and longer term tie-in. 

The risks of various forms of investment: 5 criteria for their assessment

In addition to the classification of investment products into risk classes, there are other criteria that can help you to determine the risks of investment forms and investment instruments.

1. Default risk: The default risk criterion determines the likelihood that investors will lose part of their investment or their entire investment amount (total loss). For example, if you invest in equities of a single listed company, the default risk of this investment is comparatively high. This is because there is a realistic risk of total loss if there is a sudden price collapse or insolvency.
2. Liquidity risk: Liquidity risk refers to the availability of your invested money. If you opt for a financial investment that ties up your investment amount for a longer period of time, there is a correspondingly high liquidity risk. However, unlike the default risk, the liquidity risk is limited in time, as you can freely access your money again at the end of the term at the latest.
3. Market price risk: Especially in times of crisis, market conditions can change quickly and share prices can fall temporarily or even permanently. The market price risk determines the risk that the market price of an investment will fall for a certain period of time or even indefinitely and that the investment loses a lot of its value.
4. Inflation risk: This is the risk that the returns of an investment product will fall below the inflation value and thus effectively no longer generate a profit. Following the sharp increase in 2022/2023, inflation in Germany will be back in the moderate range in 2026 - according to the Federal Statistical Office in April 2026, it is expected to be 2.9% compared to the previous year’s month.² Nevertheless, classic investments such as savings books or overnight cash accounts are often subject to inflationary monetary devaluation: Even if they shed interest again, they are often just below the inflation rate, so there is no real increase in value.
5. Exchange rate risk: The exchange rate risk always plays a role when an investment is traded across different currencies, for example by investing in the US stock market. Imagine that you are buying a share at the dollar price and want to sell it after a few months or years, but in the meantime the euro has appreciated sharply and the US dollar has fallen slightly. At this point in time, your share has lost some value as you can currently only sell it at an unfavourable price. In this case, the exchange rate risk indicates how high the loss is due to the current currency differences.

How to use risk classes for your investment

The field of risk assessment when it comes to investments is not always quite clear, but with the differentiation between the different models presented here, you have hopefully already gained a better overview. Perhaps you already know exactly where you want to step in and which investment products are suitable for you.

However, you do not have to decide on just one risk class: rather, you can also diversify across different risk classes, if your risk appetite allows it. Then you can combine investments particularly focused on safety with investments that tend to focus more on returns and get even more out of your investment amount. Or you can focus more on the income opportunities of higher risk classes and use the stability of the lower risk classes to give your investment a safety cushion.

Diversification: protection against total loss

Not only can diversification across different risk classes, but also investments within a risk class help you protect your investment against losses. So if you want to invest in equities, for example, you could diversify your portfolioby buying shares from different companies and industries.

However, note that individual transactions often carry costs. Therefore, if you frequently buy small amounts on the financial market, the resulting fees may have a negative impact on your return.

Investing in funds can counteract this. This is because you automatically invest in several assets at once - such as with our tangible asset fund klimaVest, which invests in numerous wind power and solar plants at the same time.