Investment risk profiling is an integral part of portfolio construction but is often overlooked by DIY investors.
Modern risk profiling methods feed directly into suggested investment strategies to minimise your investment risk
Historically investment risk profiling meant that if you’re a “middle of the road” risk taker that you shouldn’t invest in speculative investments. This goes against the grain of DIY investing.
It’s your money so don’t limit the funds you can invest in
Risk profiling has progressed and suggested portfolios can incorporate your needs and requirements to invest into the speculative when your overall profile is moderate risk taker. Using our suggested risk profile investment strategies allows you to incorporate that new China fund launch you want to take a punt on, but balance it out with other investments to fit in line with your attitude to risk.
You can have your cake and eat it!
Modern asset allocation is about achieving higher returns for the same or less risk.
Effectively, investing in only one asset class means your portfolio is one dimensional. By investing across a range of asset classes, ensures you are not “putting all your eggs in one basket”, and reducing the risk. Spreading the risk in this way, allows you to take greater risk with some of your investments, accessing higher returns whilst ensuring your overall investment risk is the same or less than a portfolio invested in one asset class.
How does our risk profiler work?
Our risk profiler gauges your attitude to risk for a particular investment. It asks a series of questions and, based on your answers, provides an estimate of the level of risk you are prepared to take with that area of your portfolio.
Our attitude to risk scale ranges from 1 (Very Cautious) to 10 (Ultra Speculative). Each person is different and everyone has a different approach and perspective on the level of risk they are prepared to take with a specific investment.
How does this help you construct and manage your portfolio?
Our suggested asset allocation strategies allow you to structure your portfolio or compare your existing asset allocation against the level of risk you are willing to take, ensuring you are investing suitably for your needs. For instance, if your risk level suggests you are a 5 (Moderate), but all your investments are currently invested in an Emerging Markets fund, level 8-9 (Speculative to Very Speculative) then this may require some form of adjustment.