Newton’s third law states that “Every action has an equal and opposite reaction”.
While this law holds true when it comes to Physics, we can also relate when it comes to an individual’s investment strategy.
Don’t see the correlation? Well, let us explain!
When you invest in a financial market, you’re exposed to some levels of risk, but risks should be taken according to an individual’s risk tolerance/capacity.
So what is a “Risk Profile”?
A “Risk Profile” is a measurement of a person’s willingness and capability to take risks.
The following factors contribute to one’s risk profile:
–Level of risks you must take to meet your financial objectives.
It is a useful tool in finance for assessing the individual’s capacity and tailoring the investment strategy to maximize returns on investments made.
Individuals can create a risk profile to help them make decisions that are in line with their risk tolerance. They may establish a risk profile, for example, to assist them in making investing selections that aren’t too hazardous for them while still allowing them to set and achieve financial goals.
Importance of Risk Profile
A risk profile is necessary for defining a portfolio’s optimal investment asset allocation. Because risk appetite is influenced by psychological characteristics, loss-bearing ability, investor age, income and costs, and other considerations, each person has a unique risk profile.
Your financial advisor can assist you in completing a quick and easy risk assessment to discover which risk group you fall into. He or she can then decide what percentage of your portfolio should be invested in which asset class based on this information.
FinMapp calculates your risk profile and recommends investment products accordingly. Get your Risk Profile done now for free on the app!
Types of Risk Profile
|Risk Profile||Investor Profile||Asset Allocation|
|Conservative||The safety of an investor’s cash is their |
primary priority, and they’re willing to take minimal risks
in exchange for limited or low returns.
|Equity: 0 |
|Moderately Conservative||Investors are willing to face a little amount of risk in |
exchange for a chance to make money in the
medium to long term.
|Balanced||In exchange for substantially larger potential profits over the medium to long term, investors can bear a moderate level of risk.||Equity: |
|Moderately Aggressive||In order to maximize prospective returns over the |
medium to long term, investors are willing to take on a
high level of risk.
|Aggressive||An investor is willing to take large risks in order to maximize long-term prospective returns and is conscious |
that a significant portion of their investment may be lost
Bottom of the Line
A Risk Profile should not be thought of as a check-box exercise to be completed and then forgotten about. It shouldn’t be viewed as a quick and easy approach to achieve results through investment portfolios. Each risk profile type should be gauged according to the risk-taking capacity of an individual. The true usefulness of a risk profile is as a strategic document that you can refer to overtime to keep you on track to meet your objectives.