Investment Profile Questionnaire
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Understanding yourself as an investor is important when creating an effective investment portfolio. Factors affecting your individual risk profile include:
1. Your willingness to take risk
Investments and risk go hand in hand, and the relationship between potential return and amount of risk is called the risk/return ratio. The smaller the risk, the smaller the potential return; the greater the risk, the greater the potential for profit. Generally, there are three main investment objectives, each with different risk factors:
You are willing to accept lower returns in exchange for minimal risk. You want to protect your capital typically because your time horizon is relatively short or you are uncomfortable with risk.
You are willing to accept a moderate degree of risk in exchange for the potential of having regular income added to your plan.
You are willing to accept higher risk to maximize the potential returns. Typically you will have a longer time horizon or sufficient assets to accommodate the increased risk.
2. Your time horizon
The younger you are, the more time you have for your investments to grow. Typically, this means you may be willing to accept more risk in exchange for the potential of higher returns. The older you are, the less time you have to weather the ups and downs. As a result, you may be more comfortable with predictable investments as opposed to more volatile, potentially higher growth opportunities.
3. Your financial position
The higher your income and net worth, the more risk you may be willing to accept since potential losses from riskier investments in your portfolio are more easily absorbed if you have other cash and asset reserves.
4. Your level of investment knowledge
Generally, the higher your knowledge about investments and financial planning, the more willing you may be to include higher risk investments in your portfolio.
Use this Investor Profile Questionnaire to help you define your investment objectives and your investment personality.