The real measure of your investment risk

How do you measure ‘risk’? When seeking financial advice, this can often be confusing. After all, no-one wants to make a bad investment and lose their hard earned cash!

Traditionally, when you visit a financial adviser, you complete a questionnaire that assesses your ‘risk profile’. It classifies you as an investor – do you fit the mould best suited to a ‘conservative’, ‘moderate’ or ‘aggressive’ investment strategy? But for many of us this type of categorising doesn’t address the real, human reason behind our need for advice about what’s best to do with our money.

What it doesn’t take into account is the ‘impact of different investment strategies on a person’s financial goals’ What do you need money for? How do you need it to work for you?

What’s your investment risk profile?

In her risk profile, Anna is classed as ‘conservative’; she feels more comfortable putting the majority of her superannuation funds into deposits and bonds rather than what she perceives as the more ‘risky’ shares and property .

“If I am in a low risk option it means I don’t have to monitor my super much, so I won’t lose much and, therefore, I should be ok in retirement.”

But Anna is only 35 years old, and it’s a long time before she needs to access her super. In her case, it is more ‘risky’ to invest in a conservative manner. As far as achieving her goal of super funding her retirement effectively, Anna is much better off putting her money into shares and property which, over time, will yield a higher return, leaving her more money to live on when she retires.

When talking about investing super funds, it’s important to remember that when you are more conservative earlier in life, you face a higher the risk of not making enough from your investment to make it through your retirement years. And that’s a real fear.

So maybe the best way to determine your ‘true risk profile’ is to ask yourself, as suggested by Investfit, ‘What is an acceptable chance of failing to meet your financial goals?’ No matter what those goals are, you want your money to help you achieve them.

In order to figure this out you need to assess the investment strategy options available to you in reference to your goals. I’m here to help you get it right.