Virtually every investor has the same basic goal i.e. to achieve the maximum return at a tolerable level of risk. Accomplishing that balance means knowing yourself as an investor, knowing your risk profile. Risk profile depends on one’s ability to take risks and one’s willingness to do so. Generally, every individual has their own risk-taking capacity; some are “risk- takers” and some “risk-averse type of a person. To determine their risk profile, investors should ask themselves the following pertinent questions:
- How willing are you to accept more risk to earn greater returns?
- What are the time horizons of your investment goals?
- What life stage are you in? In other words, are you near the low end or closer to the peak of your income-earning potential?
Knowing your risk profile will help you determine whether you should pursue an aggressive, moderate or conservative investment programme, in other words, an investment strategy that fits your risk profile.
