Determine your appetite for risk.
A smart investor needs to know precisely what is risk management. However, most people focus on how much money they can make without paying attention to strategically analysing risk. It is important for an investor to fully understand the concept of risk and determine his risk appetite before embarking on any investment. That’s how you’ll know which funds are best suited for you! Here are some handy pointers to get you started.
How can I determine my risk profile?
Your risk profile depends on two factors – your appetite for risk, and the length of time you have available to invest. As a rule of thumb, the longer time you have to invest (your time horizon), the more you could consider investing in a higher risk, higher yielding fund as it allows for more time to balance out market fluctuations.
So what kind of investor am I?
Knowing the type of investor you are is essential in choosing the funds you would prefer to invest in. There are few types of investors, ranging from the very dynamic to the very secure investor. Here’s how you can identify them.
If you have a big appetite for risk and will usually invest in potentially higher yielding equity funds to reap in better potential returns – you are a dynamic investor.
If you pay equal attention to both capital growth and reasonable returns, and may not hesitate to take the occasional calculated risk – you belong with the balanced investors.
However, should you prefer taking it slow and favour steady growth over quick returns - you are a secure investor
What can my investment objective be?
It can be anything your heart desires. You’ve got plenty of reasons to invest; whether it’s to buy that beautiful house you’ve been dreaming of, pay for a well-deserved vacation, or build a nest egg for a comfortable retirement. Knowing what you want and when you want it, however, will make it much easier to decide what and where you should invest in!
How will all of this come together?
To illustrate this concept, take James for example. A 25-year old engineer working in Kuala Lumpur, his investment objective is to purchase his own car and property, which requires lots of money. He has a high-risk tolerance due to his age, and will be able to tolerate market fluctuations while also having more time to grow his capital and accumulate profit as he is starting young.
As a dynamic investor, he can opt to put 80-90% of the premiums allocated to investment into equity funds such as the Lion Enhanced Equity Fund and the remaining 10-20% in fixed income funds such as the Lion Fixed Income Fund.
It is advisable for you to undergo a proper risk profile analysis as it will help you determine your risk appetite and steps to maximise your potential returns.
Kindly contact me for further information.