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Assessing my risk profile

An important step when determining the right investment strategies is to understand your risk profile. A risk profile explores how much risk you are willing to take to improve your financial position. When seeking investment returns - income and growth - there is always a trade-off between risk and return. Helping people understand asset classes and their risks, and the rationale for diversification is an important part of our job as financial advisers and educators.

Below are examples of common risk profiles:

Conservative

Investors with a Conservative risk profile typically seek an income-focused investment portfolio that has a relatively small exposure to growth assets. This risk profile is best suited to those who seek a high level of income or have a relatively short investment time frame. There is some capital risk involved in a Conservative investment portfolio and whilst negative returns are out of our hands, they typically only occur once every 19 years. The recommended timeframe for this type of investment portfolio is 2 to 4 years.

Balanced

Investors with a Balanced risk profile typically seek an investment portfolio that, in comparison to a Conservative portfolio, has a higher exposure to growth assets than income assets. This type of investment portfolio is designed to cope with the negative impacts of tax and inflation over time. With a Balanced investment portfolio, negative returns can occur at any time but typically occur once every 7 years. A medium to long-term timeframe (5 years or more) is recommended for this type of investment portfolio.

High Growth

Investors with a High Growth risk profile typically seek an investment portfolio that invests purely in growth assets. The emphasis in this portfolio is on maximising capital growth over the long term, with a minimal exposure to cash, for liquidity purposes only. Unlike other investment portfolios, a High Growth portfolio is unlikely to produce high income but is expected to generate relatively high levels of capital growth, and the returns will be tax effective. High Growth investors should expect high short-term fluctuations in returns and a higher chance of capital loss. With this type of investment portfolio negative returns can occur at any time, and the recommended timeframe is 7 years or more.

Good to know

How we determine your risk profile

Your adviser will take you through our risk profile questionnaire which will help us learn more about your attitude towards investing, your understanding of financial markets and how you may react to changing economic and market circumstances.

  • What is your major investment objective?
  • How would you react if your investments were to diminish in value over a 12 month period?
  • Would you risk shorter-term losses for the prospect of higher longer-term returns?
  • To what extent would you be prepared to experience volatility to generate higher returns?
  • What is your attitude towards investment losses?
  • What is your understanding of the investment market?
  • What is your preferred strategy for managing investment risk?
  • How would you describe your investment decisions in the past?
  • Have you ever borrowed money to make an investment other than your own home? 
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