Have you thought about what sort of investor you are?
It can be an important part of determining an appropriate investment strategy that helps you get closer to your goals.
Here are a few things to think about to work out your profile, and what it might mean for your investing decisions.
What’s an investor profile?
When people talk about investment profiles, they are usually talking about a few key things:
Time: How long you have until you need the money.
Returns: Whether you’re looking for a stream of income from your investment or are focused more on capital growth.
Liquidity: How important is it to be able to access your money quickly
Risk: How comfortable you are with your balance moving around a bit – are you the type of investor who can handle a bit of volatility, or are you most comfortable knowing your capital is more protected?
What affects these factors?
There are many things that can affect the different aspects of an investor’s profile.
Your age may be a big one – if you’re a young person starting out, you possibly have more time until you need the money, depending on the reason you are investing.
You may also be more comfortable with extra risk because you have time to recover financially from any downturns. You may also not be so worried about getting income from your investments, because you probably have a job that is providing you with income.
If you’re approaching retirement, on the other hand, you might want to start thinking about investments that generate more income, and you might be less willing to take as much risk. (Although many people in their 60s still opt to take risk with some of their investments, because they may have decades ahead of them that their money will need to last!)
How do investment advisers assess your risk profile?
As investment advisers, we have different tools to assess clients’ risk profiles. This usually starts with an in-depth conversation about your goals and your financial situation.
We might also use written questionnaires and risk assessments to ensure we fully understand your circumstances before providing you an investment plan.
When we make recommendations, we make sure these are suitable for your investment goals and risk appetite.
Why does it matter?
It is important that your investments match your investor profile for a number of reasons.
A big one is because an investment that matches your risk profile is more likely to give you an outcome that is more aligned with your goals.
If you don’t take an appropriate amount of risk for your situation, for example, you could end up missing out on returns. But if what you really want is a steady stream of dividends providing income, investing in risky growth shares possibly won’t deliver what you need.
Aligning your investment with your risk appetite can also be important when it comes to staying the course. Investors who do not like volatility may baulk if their balance drops and sell out of the investments, locking in their losses. (Though it should be noted that as advisers we’re here to help you cope with these situations.)
Ready to talk?
If you’d like some tailored guidance on your investment journey, get in touch with us. We can help you to determine your investor profile, and the sorts of investments that will be a comfortable and appropriate fit for you. We’re here to help you get closer to your investment goals.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.