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Investing in products with a higher risk suitability

POSTED ON JUNE 04, 2021    

You most likely took a risk assessment test before you started investing. This helped you identify your very own risk profile, so you could only choose from products that wouldn’t expose you to more risk than you’d be comfortable taking.

 

But, at the end of the day, only you can choose where to put your money. You may find a product that has a lot of potential for returns, but which would require you to take on more risk than your current risk profile would permit.

 

If you still want to invest your money in it, you can do so. However, there will be one difference from your usual investment process: You’ll need to sign a risk waiver.

 

The risk waiver

This document is necessary in most types of investing when you want to put money in a product that has more risk than the level acceptable for your profile.

 

While each bank and investment company will have its own version of this document, the content will remain pretty much the same. You will be stating that you understand that the product has more risk than your profile would allow, but you still want to go ahead and invest in it.

 

By signing this document, you will be agreeing to waive the results of your risk assessment and take the higher risk of investing in that product.

 

This also means that you will be agreeing to hold the bank or investment company free from any liability if your investment’s value drops lower than it would with the products it recommended for you, and also from any and all consequences of making the investment.

 

Once you’ve signed the risk waiver, you’ll be able to make the investment in the usual way.

 

Careful consideration required

While signing the risk waiver by itself doesn’t require much effort, this step shouldn’t be made without a lot of thought.

 

The risk assessment and resulting risk profile are done so the bank or investment company can recommend products that fit you. That way, you won’t face more risk than you’re comfortable with.

 

Choosing to disregard the recommendation also means that you’re choosing to face more risk in return for the chance at getting more returns. Can you really take that risk with your money, or would you be better off with a product with less potential profits but also less risk?

 

There’s also a chance that your situation has changed since your first investment. If you feel that this is the case, you can ask to take the risk assessment again to see if your risk profile is now different.

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