Before you can invest, especially in managed funds, you need to take a risk assessment test. This let you know what kind of investor you are, which then narrows your investment options, ultimately helping you choose a product that fits your risk profile.
There are 3 risk profiles that investors can be classified under.
Conservative
These people want to protect the value of their money while taking the least possible risk. In return for choosing products whose performance doesn’t usually change much, conservative investors are OK with the fact that their returns aren’t likely to be very high.
If your time horizon is short and your goal isn’t very big, you’re likely to have a conservative risk profile. Money market funds and government securities funds are among the products that match this profile.
Moderate
People with this profile usually want to balance substantial returns with acceptable risk, and are comfortable taking more risk than those who are conservative. In exchange, they can choose products that have the potential for higher returns.
If you can afford to risk your money a bit but prefer to have less chance of loss in exchange for slightly lower earning potential, you probably have a moderate profile. Bond funds and funds that have a lot of corporate bonds are among the products that fit this profile.
Aggressive
Such people can withstand a lot of risk and get the potential for high returns on their investment. They understand that the market can go up and down over the years, and are willing to ride out these fluctuations.
If you’re putting in money that you can afford to lose without serious negative effects and you want to get the most profits from it, you probably have an aggressive profile. Equity funds, funds that contain a lot of stocks and company shares are among the products that match this profile.
Risk-averse
Aside from the 3 investor profiles, there’s a fourth possible result.
Risk-averse technically isn’t an investing profile because, for these people, the possibility of losing money isn’t acceptable. That means that they can’t invest, since all products involve some level of risk.
Remember, though, that your risk profile isn’t permanent and may change according to your situation and goals. If there’s a big shakeup in your life, taking the risk assessment test again can show if you need to adjust your portfolio and investing strategy.
