At a Glance —
- Understanding your financial goals, timeline and risk tolerance will help you identify your investment profile
- Knowing your investment profile will help you make investment decisions which are aligned with your overall objectives
- Your investment profile may change over time so it’s important to evaluate your goals to adjust your investment strategy and portfolio mix, throughout your lifetime
Your investment profile is determined by your preferences and financial objectives, including your overall goals, risk tolerance, risk capacity, time frame, liquidity requirements and your tax profile. A few straightforward steps can help you determine the investment profile that best fits your requirements.
Consider the following —
1 — Review your financial plan
Be realistic about your financial needs — monthly and annual costs, savings level and liquidity requirements and an allowance for potential contingencies.
2 — Be specific about investment goals + timeline
Review the goals you’ve established for your investments and the timeline you envision. The goals you are working toward, as well as your ‘financial personality’ will help guide your investment profile and resulting decisions.
3 — Determine your risk tolerance
All investment options involve some degree of risk, some far more than others. Often however, the reward for taking on risk is the potential for a greater return.
What investor profile fits best for your specific plans, goals, timeline and risk tolerance?
Basic Investor Profile Model
Each investor profile — conservative, moderate or aggressive — has varying risk and potential return levels.
Conservative investors are relatively comfortable with some market fluctuations in the year over year value of their portfolios however they are risk averse and place more importance on preservation of wealth versus the potential aggressive returns.
Moderate investors seek a balance between income and growth and are willing to accept some risk and moderate fluctuations in value, in exchange for potentially higher returns.
Aggressive investors are far more comfortable with market fluctuation and are willing to accept even higher risk in exchange in order to have the potential of higher returns.
Different investment classes offer varying risk and potential returns. Getting the mix right, tailored to your profile, will best serve your needs. Understanding your investor profile allows you to tailor the investment types, and proportional mix, to help you achieve your financial goals.
As time passes, your profile may change. It’s important to review your investment goals regularly to ensure your investment choices are aligned to any shifts.