Perhaps you’ve seen regulatory warnings in investment marketing literature that say ‘Past performance is no guarantee of future performance’ and that ‘the value of your investment can fall as well as rise’, or something to that effect.
US President Benjamin Franklin reckoned the only two certainties in life were death and taxes but these days, depending on where you live, taxes might well be optional. Murphy’s Law states that if you drop a slice of toast it always lands buttered side down. Yes, indeed; few things in life are certain.
And if few things are certain, it follows that most things are uncertain.
This presents a challenge when making investments. You can’t be certain that if you make an investment today it will be the same, or less, or more when you want to use it in, say, five years’ time.
You can buy one lottery ticket and hit the jackpot or you can buy a ticket every week for the rest of your life and never win a penny, a forint, a cent. So you weigh up the chances of winning and decide how much you are prepared to risk losing. If all you risk is the price of a cup of coffee or a beer, it’s no big deal if you lose, but if you risk a month’s rent or your car payment, you could be out walking aimlessly on the street.
There will be a point, though, where the risks outweigh the potential benefits – this is your tolerance level. We all have a different tolerance level based on our specific circumstances. Your capacity for loss will depend on what you need to maintain your current lifestyle.
Risk Profiling is a core element of the TRUE financial planning process. The biggest issues arise when your goals require you to take more risk than you can tolerate.
Our task is to help you understand the risk you are taking to achieve your goals and to show you ways to align these goals with your risk tolerance and your capacity for loss.
But before we can identify the best investment strategy for you, we need to understand your goals and when you hope to achieve them (your time horizon). As a first step we’ll work with you to identify the level of risk you feel comfortable with over your time horizon and, together, we’ll also figure out your capacity for loss.
We use a tried and tested Attitude to Risk process, developed by leading experts, and designed to help you understand the implications, in terms of potential gains and losses, of following a particular financial plan.
By taking you through the following steps, you can be confident that the risk profile we agree on is accurate and reflects what you want to achieve from your investment strategy.
1. Complete a simple questionnaire
Developed by experts from Oxford Risk, this questionnaire is designed to capture your opinion of different financial scenarios and should be answered with reference to your financial goals.
2. Sense-check the results
We’ll review your responses with you to ensure they’re consistent and reflect your opinions to help accurately identify your risk level.
3. Determine appropriate risk and return
We’ll help you understand what a risk profile really means in terms of the potential for monetary losses and gains over a given timeframe, before settling on a profile best suited to meet your objectives.
4. Apply our expertise to develop your investment strategy
By understanding your attitude to risk and return, we can then manage your investments in the most appropriate way to achieve your goals. By applying our proven risk profiling process, you can be confident we’re really getting to the heart of helping you achieve your financial goals.
If you would like a Free Risk Profile Report, click here.