Put yourself at ease by protecting those you love
02 July 2021
Many beginners tend to view investing as a seemingly simple process. They save up a decent amount of funds, purchase a stock or property, and wait for returns to come over the years. While this view of investing isn’t wrong, it doesn’t represent the whole picture. Building a strong portfolio is a lot more complex, and there are various factors to take note of before you start investing.
Given that people have different financial capabilities, you can attain success as an investor in several ways. Various investment vehicles cater to specific needs. If you’re looking to start a venture, it’s essential to see how these financial instruments harmonize with your long-term goals. But before you start gathering options, the first thing you should do is get a clearer picture of your risk profile.
What is a Risk Profile?
Also known as risk tolerance, this term refers to an individual’s willingness to take investment risk. No matter how enticing or safe an asset may appear, there’s no guarantee that it will generate profits. Different factors, such as depreciation or market performance, may affect how your asset performs, which may even incur losses.
Knowing your risk profile will be vital since it can help you during the asset allocation process. Investors who are willing to endure losses in the hopes of acquiring great returns in the future are known to be risk-takers. Meanwhile, individuals that are willing to invest but do not want to jeopardize their financial stability are risk-averse.
Since not all assets are equal, being aware of your tendencies will be vital to your decision-making. Having a better understanding of yourself when it comes to investing will allow you to determine which assets best suit your situation and needs. The infographic below will discuss the different risk profiles to help you identify which category you belong to.
The 5 Main Types of Risk Profiles
Understanding the five risk profiles starts by knowing the concept of risk and reward. No matter what you plan to invest in, you should know that there’s always a chance that you’ll lose money. Investments that generate high returns usually come with a greater risk, while assets that generate low yet stable profits are less prone to failure.
Since investing will exercise your decision-making, your risk profile will come in handy. Knowing how much volatility and losses you’re willing to take will enable you to point out which assets you should allocate your money to. In turn, this will make it easier for you to build a strong investment portfolio that matches your financial capabilities, goals, and needs.
Conservative investors are highly risk-averse. Since their primary focus is on capital preservation, they prefer stable investments that grow gradually instead of risky assets that generate higher returns.
Investors who fall into this category are usually retired and tend to think of possible losses before purchasing. If you belong to this group, you should consider allocating your money to mutual funds, time deposit accounts, and government securities.
2. Moderately conservative
Moderately conservative investors like to play it safe but are willing to take on a low degree of risk. Their portfolios usually comprise of investment vehicles that guarantee profits, but they dedicate a small portion of their funds to low-volatility assets. Blue-chip stocks and foreign exchange are some great options to consider for those in this category.
Balanced investors keep a 50/50 approach to investing. Half of their portfolio is dedicated to secure investments, while the remainder goes to riskier assets. If you belong to this group, you should start with safe assets such as VUL insurance before you go for riskier investments.
4. Moderately aggressive
Growing capital is the primary goal of moderately aggressive investors. People in this group are usually established professionals who can withstand short-term losses. Since their focus is on maximizing future profits, their portfolio comprises assets with high volatility. Individuals who characterize themselves with this profile bet on real estate or the stock market.
Aggressive investors are financially sound individuals who can withstand significant losses. Their financial capabilities and profit-oriented mentality motivate them to reach for assets that can bring the highest returns. People who belong to this group are known to be active traders and invest in growth stocks.
4 Factors that Determine Your Risk Profile
Investment returns can vary greatly depending on your time horizon, so age is a vital element in your risk profile. How much time you have left before retirement will define your time horizon, and this will let you know which assets will work best for your present and future needs. Younger professionals who have the advantage can go on riskier ventures compared to retirees that need to preserve capital.
2. Net worth
How much you’re earning and how much you’ve saved won’t just define the assets you can purchase; they will also indicate the degree of losses you can take. Generally, investors with more disposable income can go for riskier ventures, while those in a tight spot financially should go for guaranteed returns.
Given that investing comes with risks, you should remind yourself that a failed venture will compromise your long-term comfort. This is why your lifestyle preferences and spending habits are vital aspects of your investment strategy. Making your comfort a priority will help you stay grounded and remind you to build a safety net whenever you’re allocating assets.
4. Financial goals
Your financial goals are the most important part of determining your risk profile. The milestones you’ve set will enable you to determine which investment instruments will help you progress or which ones will be counterproductive to your objectives.
Assess Your Risk Profile Before You Invest
Attaining success as an investor isn’t easy, but it’s not an impossible feat. While there’s no perfect approach to investing, being aware of your risk profile and how specific investment instruments fit your needs will enable you to make the right decisions with money. Now that you know your risk tolerance, building a sound investment should be a lot easier.
As you start your investing journey, make sure you have a financial safety net in the form of an emergency fund or better yet, an insurance policy, to make sure you and your loved ones are protected in case of emergencies while you wait for your funds to grow.
The good news is BPI AIA has a wide array of flexible insurance plans that come with an investment component. If you’re looking to get a policy amid this pandemic, you’ll be happy to know that our Bancassurance Sales Executives are still available to assist you. Schedule a virtual appointment to learn more!
You can buy a life insurance at any BPI branch nationwide! Talk to a bancassurance sales executive now!
Get the power to protect yourself and your family with an affordable life insurance plan. Life Ready Plus is easy on the budget, but offers coverage of up to 30 times your yearly payment to support the financial needs of your loved ones.
The plan gives you fast access to coverage and benefits and can match your long-term financial goals when maintained within an appropriate term.
Critical Care Max will help you make more memories by providing financial aid during the early stages of a critical illness. This unit-linked life and health insurance plan offers assistance on your recovery. You can build a health fund that grows over time, depending on your chosen investment, to pay for other medical costs.
In addition, it comes with a hospital confinement benefit that will replace lost income due to hospitalization. This daily cash benefit may also come with optional benefits like cash payout for surgery-related expenses, allowance for consultation fees, and many others.
Let your loved ones enjoy the fruits of your labor even when you’re no longer around. Build Estate Plus is a unit-linked protection plan that will cover your estate taxes after your passing so that you can ease your family’s burden.
It doubles as an investment savings fund that builds Account Value as you pay. It is also integrated with AIA Vitality that provides additional upfront coverage of 20% to your policy and add-ons.
Be in good hands in times of sickness. Let Critical Care Plus, a unit-linked health and life insurance plan, take care of you with financial aid in case of a major illness, so you can focus on getting better and spending more time with your loved ones.
It even gives you more benefits for having good health through the AIA Vitality program that adds 20% upfront coverage and supplemental benefits on your policy.