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Does your risk profile match your expectations?
17/07/2008
As well as taking a long-term view, an important element of successful investing is paying attention to your risk profile - and understanding what that means for your long-term returns.
Your risk profile is about what you want your investments to achieve and your attitude to the risks involved. While this may change over the longer-term, it’s important to understand how you feel about risk before you commit to your investment.
As Stewart Brentnall, BT's Head of Investment Solutions, says,
“One of the worst things an investor can do is change their risk profile (which
is liked to their investment strategy) because of short-term market moves - you
can’t expect to be a high risk investor when markets are booming and a low risk
investor when times are tough. The point of a risk profile, or investment
strategy, is to ensure your portfolio is structured so you can look past
short-term moves to get the result you need.”
The table below shows four common fund types that reflect some typical risk profiles. It illustrates the long-term returns, before fees and taxes, investors can expect from those types of funds.
Risks and returns: the four most common investment choices
Source: ASIC. ‘Our licensed independent actuaries consulted a variety of sources including assumptions used by industry groups, leading asset consultants and publicly available survey data about superannuation fund investment strategies.’
By determining your risk profile - such as aggressive, balanced or conservative - you can understand how comfortable you are with your investment choices, by setting a strategy which is consistent with your risk tolerance.
What type of investor are you?
Use our Risk Profiler to understand how you feel about risk.