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What is a risk profile and why you should care

POSTED ON August 26, 2019

Unlike dubious personality tests that promise to tell you who you really are, the risk assessment test can actually determine your future.

For investments like unit investment trust funds (UITFs) and mutual funds, you have to take a risk assessment test. This is because the actual assets contained by these investments are chosen according to your risk profile.

 

Here are the risk profiles

The risk assessment test will ask you questions like:

  • How much money do you want to gain?
  • How much risk are you comfortable with?
  • How often will you need to withdraw your money?
  • How long do you plan to stay invested for?

They’re all connected. The more you want to be able to gain, the more risk you’ll have to be comfortable with, and the longer you’ll be able to have to wait and not withdraw.

Think of it like a see-saw with growth on one end and the ability to withdraw on the other end. Your risk profile depends on which side you put more weight on. In the middle, the fulcrum, is time. That determines what kind of fund you should invest in.

Conservative:  A conservative risk profile means you prioritize being able to withdraw over being able to grow your money. Recommended investments are for short-term growth like funds with time deposits and treasury notes. 

Moderate: A moderate risk profile means being able to withdraw and grow your money are both very important for you. Recommended investments are for medium-term growth like funds with bonds. 

Aggressive: An aggressive risk profile means being able to grow your money is more important than being able to withdraw it. Recommended investments are for long-term growth like funds with stocks.