Your risk profile questionnaire – does it match your portfolio?
A key characteristic of a good investment portfolio is that it is suitable to you. But what determines suitability?
A suitable portfolio is one that has the right level of investment risk for you. More risk usually equates to higher potential returns. But you shouldn't chase high returns (risks) if you don't have the risk appetite.
The amount of risk we can cope with is different for everyone. Some people hate risks - risk adverse, whilst others love taking risks - risk seeking.
Your risk appetite is always changing. Generally, as we get older, we prefer to take less risks. With another year passing, do you know your investment risk appetite? Have you considered whether your portfolio is at the right level of risk for you?
With three easy steps, you can decide if your portfolio matches your risk profile.
1. Find out your current risk profile
There are a few websites where you can do a freerisk profile questionnaire. If you want a sophisticated test with lots of scientific backing, try FinaMetrica. FYI - it is a paid product.
2. Classify all your investments and savings into Growth vs Defensive Assets
+ Defensive Assets are Cash (ie Savings, Term Deposits) and Bonds;
+ Growth Assets is everything else. Generally covering stocks, real estate, commodities, options, etc
3. Check if your Growth vs Defensive allocation match your risk profile
Most of the risk profile questionnaires will classify you into one of five risk profiles. Moneysmart (ASIC) provides a rough guide to match your risk profile to the level of Growth vs Defensive Assets. An indicative match for the RBS Morgans risks profiles are:
How did you go? Is your investment portfolio carrying the right level of risk for you? If not, maybe it's time to revise your portfolio. Try our ETF portfolio builder to help you build the best portfolio.