What it is
A risk profile allows you to understand what type of investor you are in terms of how much risk you’re comfortable taking. To get your risk profile, you’ll have to take the risk assessment, which is a set of questions about your attitude towards risk and money.
There are 3 types of risk profile. Of these, Conservative means that you aren’t willing to take much risk and that you’re OK with smaller potential gains.
Moderate, on the other hand, means that you’re fine with taking a little more risk in return for the possibility of getting a little more profit. Finally, if you’re Aggressive, that shows your willingness to take a lot of risk with your money in exchange for high potential earnings.
The risk assessment can actually have a fourth result: Risk-averse. This means that you aren’t willing to take any risk. Unfortunately, people who are Risk-averse can’t invest, because all investments involve taking a certain amount of risk.
What it means for you
Knowing your risk profile is an essential step in your investment journey, because it helps you understand how you feel about taking risks with your money. This in turn can let you see which investments you can consider.
Note that you don’t have to invest to the highest level allowed by your risk profile, unless you want to. This means if you’re an Aggressive investor, you can choose products that fit Aggressive, Moderate and Conservative profiles. Moderate investors can pick products that match Moderate and Conservative profiles.
If you decide to, you can pick products beyond your risk profile by signing a risk waiver.
