Your risk profile reflects your perception of the acceptable trade-off between risk and the reward required for bearing any investment risk. If you are willing to accept a high degree of risk, then the high-risk, high-return investment will be viable alternative for any wealth accumulation purposes. In contrast, if you are risk averse you may find that a small decline in the investment may exert high anxiety. If the possibility of such loss would make you loose sleep at night, a conservative low-risk, low-return, safer investment might be better suited for you.
The other factor that affects your risk profile is the investment planning time horizon. As a long-term investor, you can better afford to assume greater risks for better potential returns. Shortfalls from anticipated returns can be made up with additional contributions that are still lesser than the required contributions when investing in lower-return, safer investments. However, as planning horizon shortens, the risk of irrevocable loss from shortfalls increases, and you may be less willing to bear risk and the overall risk profile of the investment mix declines.
Investment risk profiles
Exposure to risk is a central element of investment decisions. Knowing this, the next step is to work out your personal attitude to risk.
Investment risk profiles – which one are you?
By answering a series of questions about goals, time frames and attitudes during the fact finding process, you and your financial adviser will be able to determine your risk profile – which will help you make the right investment choices for your situation.
Asset allocation – getting it right
When it comes to deciding what to invest in, it all comes down to getting the right mix of assets. This varies from person to person and will usually be determined by your risk profile, your goals and personal circumstances. We have established six investment risk profiles; the key characteristics and the investment analysis for each of the risk profiles are detailed in the table below:
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