Advice matters
What influences your risk profile?

You might have heard people talk about investors’ “risk profile”. But what does it mean, and what determines what your risk profile actually is? And why does it matter, anyway?

Here’s what you need to know, according to SHARE advisers.

Disclaimer: The following article is intended to provide information and insights regarding personal risk tolerance and attitude towards investments. It is essential to note that the content of this article is not geared towards analysing or considering the risks associated with the different risk profiles.

What’s a risk profile, anyway?

When people talk about a risk profile, they usually mean an investor’s attitude to coping with investment risk. Some people are comfortable taking on a lot of risk, on the understanding that it means they have the potential to reap larger returns.

Other people are more conservative, and place a lot more value on holding on to the capital they invested, even if it might mean lower returns over time.

But your risk profile isn’t set in stone and it can change over your life. Here are a few things that might influence it.

Your timeline

The amount of time you are going to be investing for is a big driver of your risk profile, because it determines how much time you have to “ride the markets”.

If you are 25 and investing for retirement, you may be able to take more risk than someone who is older, because you have decades in which markets could move around without really affecting you, before you needed access to your money.

Your personality

Another influence on your risk profile is your own personality. You may not be too comfortable with risk and the prospect of market volatility – and it’s natural, everyone is different.

The key thing here is to thread together your capacity to weather risk, your investment timeline, and your financial goals. Think of it as not just following your heart or your head, but aligning them both in your financial journey.

This is where working with a SHARE adviser can make all the difference. We can help you harmonise your personality with your investments, finding a strategy that allows you to balance your investment returns and your peace of mind.

Plus, we can be in your corner during periods of market turbulence – helping you stay on course, weather the storm, and make progress towards your financial destination.

Your goals

Your investing goals will also influence your risk profile and the amount of risk you need to take to get there. If it’s important to you to have a set amount of money available for a particular reason, such as for a first-home deposit or a renovation project that you know is coming up, it may make sense to dial down the risk on this investment.

A SHARE adviser can work with you to help determine the appropriate strategy for your investment timeframe as well as risk tolerance.

Why it matters

Sometimes, investments are made according to the wrong risk profile. KiwiSaver can be an example of this – if you haven’t made an active choice you’re most likely in a default, balanced fund. Depending on your risk profile, this could mean that you’re taking more or less risk with your investments than you’re comfortable with.

That’s why it’s worth checking your risk profile against your investments to make sure that your settings are right. Allocating your investments in line with your risk profile is a good way to potentially maximise returns while ensuring that your strategy fits your personal circumstances and risk tolerance.

Like to talk?

We can help you understand your risk profile and what it means for your investment decisions. Whether you’re just wanting to check your existing strategies, or get some new investment plans in place for the future, we can assist. Give us a call or drop us an email to discuss what help we can provide. Check out our website or call 0800 2 SHARE.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.