Financial Life Cycle based on Personal Risk Profile
Aggressive Risk Profile –
Young and unmarried investors should choose this risk profile.
Aggressive investors want to make more money, and they want to do it in style. They tend to take extravagant risks. Aggressive investors don’t mind losing money because there’s more where that came from or they already have substantial funds in reserve. They tend to invest in high risk products.
This suits investors with a more than 20-25 year timeframe. The 100% exposure to growth assets (shares and listed property) means that capital stability is not a consideration.
Growth Risk Profile –
Young and married people should opt for this risk profile.
Moderately aggressive risk-takers are long-term investors who can patiently wait for their stocks to increase in value. Although this kind of investor may lose more than average when the market is down, growth investors also tend to gain more when the market swings back up. Their investments are in combination of high risk products & moderate products.
This suits investors with a 15-20 year timeframe. The 80% exposure to growth assets (shares and listed property) means that capital stability is only a minor concern.
Moderate Risk Profile –
This risk profile can be opted for by married people with young children.
Like almost everything else in life, the majority of investors fall in this category, right in the middle. These investors lose less when the market goes down and gain a little more than average when the market goes up. They prefer a balanced portfolio and are usually invest in moderate risk products.
This suits investors with a 10-15 year timeframe or those who seek both income and capital growth. Hence, 50% exposure to growth (shares and listed property) and 50% exposure to defensive (cash and fixed interest) assets.
Conservative Risk Profile –
People in the pre-retirement phase can go for this type of risk profile.
Conservative investors are generally a little older and are preparing for retirement. They might also have experienced large losses in the past. They want to take more risks than secure investors do, but they also want to protect themselves from losses during downside fluctuations in the market.
This suits investors with a minimum 5-10 timeframe or those who primarily seek income with some potential for capital growth. Hence, 80% exposure to defensive assets (cash and fixed interest).
Secure Risk Profile –
Retired people generally prefer and opt for this risk profile.
Unlike aggressive investors looking to make quick money, most secure investors only want to hang on to what they have. Many secure investors can no longer work and are unwilling to risk losing any of the income they have left. Most of the time, investors who cannot tolerate any risk whatsoever are better off leaving their money in a bank account.
This suits investors with a minimum 2-5 year timeframe. This portfolio suits investors who give a high priority to the preservation of capital. Hence, 100% exposure to defensive assets (cash and fixed interest).
The above information can be used as a guideline and there are no compulsions to follow this approach. Above approach can help to choose your risk profile and mange your investments.
Of course, this is just an overall look at the risk profiles and who should opt for them. You may find that one of these risk profiles describes you perfectly. Whatever category or categories you feel best describe your investment strategy, using a risk profile can help you determine what investments will work for you and what benefits they will have.
Types of Investment (depending upon risk):-
Very High-Risk Products: Crypto-currencies, Mid-Cap Funds, Small Cap Funds
High-Risk Products: ULIPs and Exchange Traded Funds (ETF), Large Cap Funds
Moderate Risk Products: Bonds
Low-Risk Products: Savings in bank