By: MJ Gonzales | Executive Chronicles
In investing knowing yourself is also essential so you know how to handle tough times and estimate how to improve your finances. In connection to this, don’t be offended if your broker or agent, gauging your capacity to invest with your consent as it will help both of you to identify your risk profile. Why it’s very important?
All kinds of investment have risk, the only difference is how high or low they are. Your level of aggressiveness should not depend on your desire and available fund, as investments such as in stock market, mutual fund, and foreign exchange is volatile. No one wants to have non-earning investment and experience bankruptcy, but the reality is it could happen. On the positive side, your risk tolerance is can be way to possibly earn millions in the next three or five years.
To know your risk profile, you can consult available risk profiling systems and much better, get a personal financial planner. On the other note, stockbrokerage firms also conduct assessment before they let their clients to invest like Filipino company Col Financial do. The online stockbrokerage firms has “Client Suitability Assessment” that let new investors to identify the right mutual fund for them based on their conservativeness or aggressiveness.
According to Australian risk profiling system firm FinaMetrica, there are three processes to find your overall profile. They are risk required, risk capacity, and risk tolerance. FinaMetrica explained that you can learn your risk required and risk capacity with the help of financial planning software. For risk tolerance, investors should take psychometric test as it connected with psychological characteristic of a person. In the report of U.S. News, answering questions such as what you can afford to lose, your target time to reach your goal (i.e. retirement, wedding, or migration), and your emotional ability.
Meanwhile, other points also to consider for risk profile are your age, cash flow and prowess to generate income. Remember that investing is not only about risk of losing, but ideally continuous and long-term to steadily build wealth.