Risk Profile: What You Need To Know Before Investing

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Risk Profile: What You Need To Know Before Investing

Written by: Samantha Butcher l Advisory Team


A risk profile is a personalised profile that takes into account your financial goals, your investment timeframe, and the level of risk you are comfortable taking.  It is important to remember that there is no right or wrong risk profile, your risk profile is just that – yours and it is whatever you are comfortable with and what suits your needs at the time.

Investments are risky business!  You should review your risk profile regularly as you may find the way you feel towards risk has changed, whether that be moving more towards taking a greater risk or wanting to scale back from risk and moving into a more conservative profile.  Perhaps your portfolio isn’t growing to your expectations so you want to take more chances, or you’re heading down the path leading to retirement and you’re considering a more stable investment.

Whichever type of investor you are when it comes to your risk profile, it is important, to be honest with your financial adviser to ensure that they can tailor your investment strategy to the type of investor you really are.

What Are The Types of Risk Profiles?

Let’s start from the start by taking you through the different types of risk profiles because the first place to start is to identify your risk profile.  Investing in the share market is considered risky, this is because there is uncertainty around how the investment will perform over the short term as well as the long term.

Your risk scale will determine whether you are more of a conservative investor or an aggressive investor.

There are generally two types of investment groups – defensive and growth.

Defensive assets are considered low-risk but with the ability to provide a stable return.  Defensive assets include such things as cash, bonds, and fixed interest and are generally considered to provide income rather than generate capital growth.

Growth assets are types of assets that generally come with a higher risk, with the potential for higher growth over a longer term.  Growth assets include shares, property and infrastructure.

Conservative Risk Profile

A conservative risk profile would be appropriate for investors who like to play it safe with the capital they are investing.  They look for safety by taking minimum risks and are content with the minimum or low returns.

Example of the possible investment model: 85% defensive assets with 15% growth assets.

Moderately Conservative Risk Profile

A moderate conservative risk profile would be appropriate for investors who prefer greater liquidity and are ready to accept lesser profits with minor losses.  These investors are willing to take small levels of risk for a potential return over the medium to longer term compared to a c conservative risk profile and are willing to take a little more risk and diversify.

Example of the possible investment model: 70% defensive assets with 30% growth assets.

Balanced Risk Profile

An investment objective of a balanced investor is to obtain a balance of security, income and growth with security and income ranking before growth in priority.  They place equal priority on lowering risks and increasing rewards.

Example of the possible investment model: 50% defensive assets with 50% growth assets.

Moderate Risk Profile

A moderate risk profile can sometimes be or look similar to a balanced risk profile.  A moderate risk profile allows for a broader spread of investments.  However, there will be a higher focus on growth assets.  Moderate risk investors however are all relatively less risk-tolerate when compared to aggressive risk investors.  They will take on some risk and will set a percentage of losses they can handle.

Example of the possible investment model: 30% defensive assets with 70% growth assets.

Growth Risk Profile

A growth risk profile suits investors who are willing to accept higher levels of investment value volatility in return for higher investment performance.  A growth risk profile is for investors who are seeking some gains whilst still having some protection with their defensive assets.  These investors also understand the volatility in the market but are willing to accept this in pursuit of growth over the long term.

Example of the possible investment model: 15% defensive assets with 85% growth assets.

Aggressive Risk Profile

An aggressive risk profile is all about growth and they are willing to take big risks!  They would consist of investors with the highest risk-bearing capacity.  The main objective being to attain the highest returns within the shortest amount of time.  These investors are happy to take on the market highs and lows to pursue growth.

Example of the possible investment model: 100% growth assets.

Importance Of A Risk Profile

It is imperative that your risk profile is identified prior to your investment journey beginning.  As we mentioned above, investing is considered risky because there is uncertainty around how the investment will perform over the short term and the long term.  The risk scale will determine whether you are more of a conservative investor or if you fit the aggressive risk profile as an investor.

Your financial adviser can help you ascertain what type of investor you are.  The overall goal is to ensure that you are comfortable with the risks that you are taking as well as have a clear understanding of what the potential outcomes could be.

Investment Guidelines

There are three simple tips to help to determine your risk profile:

  1. Understand the risk profiles of your asset classes;
  2. Match investments to your investment horizon and risk profile; and
  3. Spread your risk.

Asset Classes

There are four main asset classes:

  1. Shares – generally, shares are considered to be among the higher-risk asset classes.
  2. Property – is often considered to be less risky than shares, but riskier than an asset class such as fixed interest.
  3. Fixed Interest – generally, fixed interest is considered to be a less risky asset class.
  4. Cash – is typically the lowest-risk asset class, but also offers the lowest potential returns.

Your Investment Journey

As an investor, it’s important to think about how long you’re going to be investing.  For example, if you are at the start of your investment journey and have time on your side, you may be able to take on the greater volatility that comes with ‘growth investments for shares and/or property which may rise in value over the long term and potentially give you a higher return.

Diversifying Your Risks

Different assets. tend to perform better at different times, so it’s possible to reduce volatility by investing within different asset classes.  This is known as diversification, or rings true to the common saying “Don’t put all of your eggs in one basket”.

How Canny Group Can Help You Identify Your Risk Profile

With your risk profile in mind, Canny Advisory can help identify your investment strategy, making sure you understand the types of investments in your portfolio and your options.  Our team will continually work with you and review your investments.  The overall aim is to put you on the road toward achieving your financial goals.  You will have an expert team beside you every step of the way.

So, let’s identify your investor risk profile together!  Once we have addressed your risk profile, we tailor your investment strategy to match that risk.  Regardless of where you are on your investment journey, we can help you through every step.

Get in touch with our team today to find out how we can help you in achieving your financial goals.

Canny Advisory Director and Financial Adviser Samantha Butcher stands centre in the photograph wearing a short sleeve white top

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