Every individual have different financial goals. It can be short-term goals like saving for overseas holiday or medium-term goals for purchasing a car or long-term goals like planning for retirement. Knowing investing personality and financial risk appetite will help an individual to pick the right investment to match his/her goals.
Well-expressed investing profile is an important first step towards investing. Investing based on risk profile can make it possible to create an investment portfolio that is most suitable to an individual investor.
For example, the investors nearing their retirement should choose low-risk products to minimize the risk of sudden decline or loss in the value of their investments. At the opposite spectrum are younger investors investing for their retirement can take higher risks and achieve higher potential returns. They have a long-term horizon that positions them better to ride the ups and downs of the market.
Financial risk is simply the possibility that investment might suffer a loss or fail completely. As a basic financial rule, the higher the risk, the higher the profits. Attitude of an individual towards financial risk determines choice of investments.
Determining Risk Tolerance And Appetite
Based on investor's risk profile, risk tolerance and appetite it can be classified as follows:
Conservative (Low Risk): Those investments that will grow steadily in value and do not experience much volatility are conservative investments. High growth is certainly not the priority of an investor. The focus is more on moderate returns and on generating a steady income stream. A bank fixed deposit is an example of a low risk investment.
Balanced (Medium Risk): Good if not very high returns over the long-term are known as balanced investments. Although investments may undergo some market fluctuation. Often, an investment portfolio of a medium risk investor contains slightly riskier but stable investment options combined with a small proportion of riskier ones to generate better returns. A mix of shares from large and stable companies or units of a balanced mutual fund is an example of a medium risk investment.
Aggressive(High Risk): Those investments that expose to a greater level of risk and accept high volatility to maximize returns are known as aggressive investments. Shares of mid or small companies or units of equity mutual funds are examples of high-risk investments.
At Lloyd Business School (LBS) Greater Noida, we have PGDM and MBA program with specialization of Business Analytics, Supply Chain Management, HR, Marketing and Finance. In finance specialization at LBS we not provide theory classes only, on the other side we trained to young graduates from all streams that how they can create their wealth in the long run by investing even a small amount of Rs. 100 per month. The founder President of Lloyd Group of Institutions Manohar Thairani is Chartered Accountant by profession and motivator to young executives to participate in capital market through mutual funds. Number of faculty members and students are regularly participating through mutual funds and serving to heighten the economy of India. As Americans and Japanese are escalating their economy through market participants in the same fashion LBS is motivating to its faculty, staff and students to fasten the Indian economy.