Your risk profile-what is it?
Your risk profile is the level of risk you are willing to take when you make an investment! The higher the potential return on your investment, the higher the risk but the catch 22 situation is that just parking your money in low risk low return investments will inhibit your potential returns and could end up costing you in the long run. Taxation and inflation will eat away your profits so investing needs to be a balance between risk and reward.
Your risk profile is a big factor when deciding how you are going to invest and that has several parts to it so lets examine them.
1. YOUR AGE
When you are young, you are able to take more risks because you have more time to recover from financial setbacks but that is not to say you cannot be on the conswervative side if your circumstances warrant it.
It also does not mean that you cannot take risks when you are approaching retirement because chances are that you could live long after you retire.
2. YOUR GOALS
It would be madness to invest in high risk (growth investments) if you require the money in the short term, say within the next 6 months to pay for a wedding, new car, or whatever because the markets may be losing ground and you may end up with less money than you intended. Therefore for money you require in the short tern, invest conservatively.
3. PERSONAL MAKE UP
If the prospect of losing your money is going to cause you to lose sleep then lean towards more balanced investments. These are a combination of growth and conservative investments.
Your potential return will not be as much as it could be but at least you will sleep easy, albeit, at a cost.
4. YOUR FINANCIAL SITUATION
If you are up to your eyeballs in debt then clearing that debt has to be your number one priority and staying out of debt is priority number two then you can think about saving for whatever reason. Investing in the kiwisaver scheme is a very good investment for the reason that there are tax credits of up to $520 per annum and you are entitled this providing you invest a minimum of $1040. That equates rto 50% return on your investment, tax free. Where else will you get a return like that?
At the end of the day, it is your money you are investing and it is you who will bear the consequences for any financial decision make.
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