What is my investment risk profile?

The starting point of any investment decision should always be how much risk you are prepared to take with your investment. Generally, the more risk you take, the higher the potential returns become but equally the higher the potential for loss becomes. The attitude to risk can also be adjusted to take into account your long term goals for the investment you intend to make.

Below is a simple 3 minute, 6 question task that can help you determine your attitude to risk, along with a guide to understand your risk appetite for an investment.

Risk Profile Questionnaire, choose one answer and total the scores (in brackets) after the answer you have chosen:

1. WHEN IT COMES TO INVESTING, HOW WOULD YOU DESCRIBE YOURSELF?

a) No understanding / knowledge     (10)

b) Very little understanding / knowledge     (20)

c) About as much understanding / knowledge as the next person    (30)

d) A fair degree of understanding / knowledge    (40)

e) A high level of understanding / knowledge     (50)

2. IF YOUR INVESTMENTS DROPPED IN VALUE BY 20%, HOW WOULD YOU REACT?

a) Sell all of the remaining investments     (10)

b) Sell a proportion of the remaining investments     (20)

c) Hold the investments and do nothing     (30)

d) Buy more of the same investments     (40)

3. WHAT ARE YOUR MAIN SAVING AND INVESTMENT GOALS?

a) Immediate income (within 5 years)    (20)

b) Specific goals in 5 – 7 years     (30)

c) Specific goals in 8 – 10 years     (40)

d) Longer term growth, 10+ years     (50)

4. HOW WOULD YOU COMPARE YOURSELF TO OTHERS IN TAKING FINANCIAL RISKS?

a) Much less willing to take risks than average     (10)

b) Slightly less willing to take risks than average     (20)

c) No more or less willing to take risks than the next person     (30)

d) Slightly more willing to take risks than average     (40)

e) Much more willing to take risks than average     (50)

5. WHEN YOU HAVE MADE A SIGNIFICANT FINANCIAL DECISION, HOW DO YOU FEEL?

a) Very concerned     (10)

b) Slightly concerned     (20)

c) A little uneasy     (30)

d) Confident     (40)

e) Very confident     (50)

6. IF YOU HAD TO CHOOSE FROM THE FOLLOWING INVESTMENTS, WHICH WOULD IT BE?

A – never has a negative return and annual return between 0% to 3%     (10)

B – has a negative return once every 12 years and annual returns -2% to 7%     (20)

C – has a negative return once every 10 years and annual returns -4% to 9%     (30)

D – has a negative return once every 8 years and annual returns -6% to 11%     (40)

E – has a negative return once every 6 years and annual returns -8% to 13%     (50)

F – has a negative return once every 4 years and annual returns -10% to 15%     (60)

TOTAL SCORE ___________ ?

Up to 160, Cautious Portfolio - You are prepared to accept potentially lower returns from investments where your capital is at little risk. You should invest very little in stocks and only then via funds with a long term view (5yr +) and focus on cash / bonds for the majority (around 85% of the portfolio).

161 – 180, Moderately Cautious Portfolio - You are prepared to accept a relatively low level of risk on investments over the longer term, in order to achieve potentially higher return. You should not invest directly in stocks in the shorter term, however, having up to 30% in good quality stock investment funds with a long term view and the remaining 70% spread across lower risk, diverse assets such as bonds, cash and property is viable.

181 – 210, Balanced Portfolio - You are prepared to invest in equity based assets, where the risk is spread across a variety of investments with the aim of potentially higher returns. We would usually look at a simple 50/50 split between a mix of stock investment funds and lower risk bonds/cash.

211 – 250, Moderately Adventurous Portfolio - You will accept above average risk for the prospect of high returns. You should not be concerned with short term volatility, we would expect the majority of your funds (70-80%) to be invested in stocks with the remaining in lower risk assets and could invest into equity funds within a specific geographical area or sector.

251 plus, Adventurous Portfolio - You would be almost exclusively invested in equity based, stock assets, where the risk is spread across a variety of investments (some of which are “specialist” investments by sector or geography) with the aim of potentially higher returns, accepting the increased risk of a loss on your capital.

Please note, the above does not constitute specific advice or recommendations for your own circumstances and is intended as a guide only. Always seek professional assistance where required.