Investor risk profile review
Is my investor risk profile standing the test?
A periodically-reviewed investor risk profile ensures that your underlying investment philosophy can be appropriately applied to the asset allocation of your investment portfolio. It should help in your understanding of your reactions to market volatility on your portfolio; and give you peace of mind that your investments are being managed in accordance with your capacity to undertake investment risk.
The features and characteristics of included assets, about which investors should be concerned, include whether –
- the assets maintain a reliable, clearly understood ‘returns’ profile;
- the capital value of the assets moves within acceptable ranges during market changes;
- the liquidity of the assets remains adequate in changing markets;
- the size and duration of any fluctuations in any of these matters is acceptable; and
- there is stability in the management engaged with the assets.
Investor risk profile reviews
In the first several years following the GFC (or The Great Recession, as it is sometimes referred), we noted that a number of clients for whom we undertook an investor risk profile review recorded a profile at least one-step more conservative than had been the case prior to that event. Clients who had borrowed money to invest in shares, managed funds and/or property prior to that event, often ranked at a level where gearing their portfolio would have been precluded had they so rated at the time of commencing that investment.
Whilst the GFC was an extreme event, it is important that an investor risk profile review be undertaken periodically to ensure that over the passage of time (in itself, diminishing the time available to achieve goals), events in the investor’s life haven’t altered their capacity – or willingness – to continue investing under the existing profile. Issues such as family changes, debt reduction, health issues can all impact the risk aversion profile.
As a consequence of the investor risk profile review, the appropriate asset allocation can be implemented to ensure that you retain confidence in your investment strategy, can sleep at night – and can still have a level of comfort that your goals for financial independence can be met.
ContinuumFP can help
If you find that market volatility is stressful – and particularly if you are losing sleep over the performance of your investments (including in your superannuation account) – please contact our office and arrange for your risk profile to be reviewed by one of our experienced advisers. Call our office on 07-34213456; or use the website Contact Us facility and we’ll arrange to speak to you promptly – and courteously.
[This is an article originally posted in 2008: it has been refreshed/ updated from time to time, most recently in March 2021.]