Investing

Print

What is a Risk Profile?

Understanding your own Risk Profile (or what type of investments you are comfortable with) can help guide your decisions about superannuation and other investments.

Why should I know my Risk Profile?

Your Risk Profile depends on factors such as your goals, age, resources, investment timeframe and tolerance to risk and volatility. These factors can influence your attitudes to some of the basic financial questions most members face during their lives, including:

  • Should you fix your home loan rate?
  • Do you need to purchase more insurance?
  • Should you top up your superannuation?
  • Should you invest in a more aggressive investment portfolio?

Part of our Financial Planning process is to work out which investment approach is right for you in relation to your strategies and objectives. This is often called ‘Risk Profiling’. Its aim is to help you assess the relevancy of each of the questions listed above to your personal financial situation.

For example, if you are saving towards a home deposit or a holiday in the next twelve months, the type of investment options you may be considering will be different to those that are suited to building long-term savings for an education fund or retirement.

As well as your timeframe, it is important to consider what your appetite for risk is. Because of the Global Financial Crisis, over the recent years members have gained a firsthand understanding about how higher returns from exposure to shares through their super also means higher risk. If you find you’re having trouble sleeping at night worrying about your investments, perhaps you should consider investing in a lower risk option.

Finding the time to gain an understanding of financial markets and what that means for your own situation is not easy, but learning all you can about the types of investment strategies available is vital in making the right investment choices for youand your situation.

How often should I review my Risk Profile?

You should review your risk profile regularly because most people’s attitude to risk changes throughout their life. It can be particularly useful when your circumstances change. Eg. When You buy a house and take on debt, start a family or as you get closer to retirement.

What are the Risk Profiles?

There is no uniform or industry standard name for each risk profile. The list below includes the Risk Profiles used by Industry Fund Financial Planning. 

Risk Profile

Defensive and Growth split

Explanation
Conservative 100% Defensive
  • Focuses entirely on the preservation of capital
  • The return is likely to be low and consistent compared with the other risk options offered
  • Restricted in its ability to reduce taxable income or the tax effectiveness of that income
  • Suited to an investor who has a short investment time frame
Cautious 80% Defensive
20% Growth
  • Income-focused portfolio that has a small exposure to growth assets
  • Main emphasis is on generating income, with some capital risk in order to achieve overall portfolio growth
  • Expected to have a low fluctuation in short-term value, with some small shorter-term capital risk
  • Income generated by the portfolio may have a small tax benefit from some share dividend franking credits
  • Suited to an investor who has a relatively short investment time frame
Moderate 60% Defensive
40% Growth
  • High exposure to fixed income securities, but also includes exposure to share and property markets
  • Suited to medium-term investors who are seeking a reasonable degree of capital stability, but who also want to protect their assets from inflation
Assertive 40% Defensive
60% Growth
  • Using a slightly higher exposure to growth assets than income assets, this portfolio is expected to have lower short-term fluctuations in value than the other growth-based investment portfolios
  • Suited to an investor who has a medium to long-term time frame. It has a ‘balanced’ exposure to shares, property and fixed income assets, while the income generated by the portfolio may be partially tax effective
Aggressive 20% Defensive
80% Growth
  • Growth-oriented portfolio that is best suited to long-term investors
  • Small income exposure should slightly reduce the shorter-term fluctuations of the portfolio’s value
  • Best suited to a long-term investor who can accept some investment risk over the long-run
  • High exposure to share and property to provide long-term investment growth
Highly Aggressive 100% Growth
  • A 100% growth based portfolio with no exposure to income assets
  • Has a strong emphasis on maximising capital growth over the long-term
  • Best suited to a long-term investor who can expect high short-term fluctuations in values and a higher chance of capital loss. They are prepared to accept this as a trade off in achieving their long-term investment objective


I want to speak to an Adviser about my Risk Profile

Contact Us to arrange for an Adviser to call you back when it suits you.

 

Last updated on 9th March 2012