If you haven’t caught on the investment wave yet, it’s not too late. Growing and multiplying your cash is a perfect move that will set you on the right path to wealth and financial freedom if managed wisely.
However, before you make the jump, it’s essential to identify your risk profile (which is determined by your investment preferences concerning your potential to deal with risks), so you can be appropriately guided.
Here are the three major investment types:
The conservative is opposed to risks because he/ she usually sees them as a sign of danger. This investor is more concerned about the liquidity and security of his/ her investment, over the profitability. This leads him/ her to invest in low-risk options, which in most cases are less profitable than investment options with higher risks. The conservative is comfortable with short to medium-term investment ranging from 0-5 years.
This investor profile can be termed as balanced. The moderate investor is in the fine line between being conservative and aggressive. Investors with this profile are willing to take up a higher risk than conservative investors, but they do not go overboard. They have a pretty sound knowledge of the operations and volatility of the investment market and this informs their investment practices. This profile isn’t too stringent on liquidity or security, and they are more interested in their returns. The moderate investor is comfortable with a medium to long-term investment ranging from 5-10 years.
The Dynamic/ Aggressive
If you are a ‘daredevil’ who loves risks, you most likely fall in this profile. The dynamic/ aggressive investor enjoys risks and is willing to take them, no matter how high. He/ she has a very sound knowledge of the investment market and is continually looking out for options, changes and dynamics. In most cases, this investor has a lot of money and isn’t so keen on liquidating the funds soon because he/ she is confident that the investment will yield high returns in the long run. The dynamic investor is comfortable with long-term investment options.
A significant investment hack is to identify and understand your risk threshold by doing a self-assessment.
You can ask yourself questions such as- ‘How long am I willing to invest for?’, ‘How long do I intend to work for?’, ‘What are the significant expenses I could incur as I get older?’, ‘How do I react to market changes?’
It’s essential to identify what your risk profile is, so you can accurately match it with your investment options. Investing wrongly could lead to major financial and emotional issues in the long run.
Based on the outlined profiles, what type of investor are you?