The aim of risk profiling is to not only determine the financial risk you have the capability to take but also the level of risk you are willing to take.
The fact is that every investment has some risk and the key is to understand the risks so that you can weigh up the pro’s and con’s of each investment type, and then put into place a strategy suitable for your situation.
When you come to see us for investment advice, we will ask you a range of questions on:
Your current financial situation – Your debts and other ongoing expenses. Your income. How much money you have to invest and how much financial risk you can afford to take at your current stage of life.
Your financial goals – Are you saving towards a particular goal eg retirement nest egg or wanting to build your wealth.
Your timeframe – How long do you have to achieve your goals? What risks are required to reach your goal in the desired timeframe.
Once we get a picture of where you want to head and the timeline of how long you wish for your goals to take. To determine your risk profile we will then ask you further questions to understand your attitude to risk. Everyone is different we want you to be able to sleep at night and not worrying about your investments.
The greater the risk potentially the higher rewards or would you feel more comfortable with consistent returns.
The different risk profiles
The names given to risk profiles vary between Superannuation funds but they tend to fall into one of the following categories:
You want stable, reliable growth and/or a high level of income. You are only willing to accept minimal losses and may have a short-term investment time frame.
You want reasonably stable growth and/or a moderate income and are willing to accept a moderate level of risk. Your investment term is a few years or more.
You are looking for a diversified portfolio that contains a balance of security and the potential for growth. You are willing to accept a certain level of volatility and will typically be prepared to invest for five years or longer.
You want to invest in a broad range of asset classes but with a greater focus on growth rather than income. You are willing to accept volatility in the value of your investments in return for potentially higher growth, and you could be looking to invest for up to 10 years.
Long-term capital growth is your main focus. You are willing to accept substantial fluctuations in value in the knowledge that you will be able to access the highest possible returns in 10 years or more.