Ooh, such a cool risk profile!

Can you believe that some people pay money for the opportunity to participate in the most inane, risky activities like bungee jumping, sky diving, hot air ballooning etc.? And then there are people like me who would never do it, not even for a million bucks. So what is the difference? Risk tolerance. The first group is aggressive regarding physical risks; people like me are risk-averse.

It is the same when it comes to financial risk. Some people are very aggressive when investing their money–they are willing to risk more of their capital to earn higher returns. Some individuals are conservative; they do not want to take as much risk and are OK with lower returns. Finally, some individuals are balanced and willing to take on a prudent level of risk for reasonable returns.

No one is right or wrong–different people have different risk appetites, which is perfectly alright.

As you embark on your financial planning journey, you must understand and accept what kind of risk-taker you are when it comes to finances. You want to develop and follow a strategy aligned with your inherent nature to take advantage of opportunities. You will constantly be stressed if you are risk averse but invest in the riskiest assets like cryptocurrencies and unknown stocks. On the other hand, if you like taking risks but invest in safer assets like fixed deposits, you will lose out on potentially higher returns that you could have otherwise made.

Rishi profiling is the second step of my seven-step financial planning process. Any basic risk profiling survey will help you get a good sense of what your tolerance for risk is.

If your banker or relationship manager has not administered this to you as yet, fire them. Seriously. It is the same as a doctor sending you for surgery without looking at any reports.

If someone is advising financial products, they need to know what your goals are and what your appetite for risk is. And if they don’t have the time or interest to do that, they do not deserve your business.

Once you know your risk profile, you should buy products broadly aligned with that. Of course, if you are looking to make substantial returns in the long term, you will need to step out of your comfort zone slightly and invest in some investments like equities, etc. But with measure.

Lastly, this exercise should be revisited often. That’s because your risk profile is not constant; your approach to risk changes with time and circumstances. For example, when you are young, you may be willing to take substantial financial risks but not as much when you have a family that depends on you.

Actually, that also means I may tie that bungee cord to my feet someday and jump off a tower… Unlikely, but let’s see ……

If you are looking for a simple risk-profiling survey (7 questions, 3 of which are attached), pick up a copy of Three Pigs to Financial Freedom. We will determine whether you are aggressive, balanced, or conservative in managing finances. I will then give you a specific financial plan–the products you should be buying basis your risk profile, how much, and from where. And then tell your bankers that you have done it all and wish them well on their job-search.

Rishi Piparaiya?has held senior leadership positions in wealth management, strategy, sales and marketing with leading financial services organizations, including Citi, Aviva and Banco Santander. He left his corporate job at the helm of his career to pursue his passions. He is now a?bestselling author,?world traveller?and?angel investor.?His latest book,?Three Pigs to Financial Freedom, demystifies financial planning and offers an incredibly easy system to manage your money for a comfortable, worry-free life.