What is your investment style?
Everyone has an investment style that is as personal to them as a fingerprint. But how do you find out what yours is? The simple answer is to determine what level of risk you are comfortable with in your investments.
The risk/return ratio
The risk involved in a stock is sometimes equal to the return on investment that the stock offers. While this is not always the case, riskier stocks traditionally offer higher returns. As the "risk" name implies, they can also mean larger losses.
Investing in a fund or stock with a high-risk profile automatically becomes less risky if you are holding the investment for a long period, as you may for retirement savings. Investing in segregated funds with an insurance company is even safer, because all or part of your investment is guaranteed.
What are the factors that determine your risk tolerance?
Several key factors contribute to your risk tolerance.
Your age is a huge influence on risk tolerance. Younger people will tend to gravitate towards riskier investments because they have more years to ride the ups and downs of the stock market, while older people will lean towards conservative investments.
Those with less of an income to spend on investing are taking more of a risk when they are investing that income, which can lead to a more conservative preference. Those with higher incomes can afford to lose money if a risky stock takes a nosedive, so they tend to be less risk-averse.
Someone investing for the first time will usually have a more conservative investment style than someone with a Masters in Economics who has been investing for twenty years.
Some people are risk takers in life and some aren't. If you take risks in other areas of your life, your investments may naturally follow.
The more responsibilities we have, the less risk we are usually willing to take on.
How can I determine my risk profile?
We have developed a handy tool that will help you determine your risk profile and suggest products that fit your investment style. You should revisit your risk profile and investments every few years to ensure that your investments still fit your investment personality.