The Five Property Investment Risk Profiles
Did you know that as a property investor, you make most of your decisions based on the risk level of losing your money? Investment risk tolerance is something almost everyone possesses inherently. It exerts its influence on almost every decision you make on your investments. As a result of the risk temperament or tolerance factor, every day property investors fall into five different risk profiles. What are these categories and what does each represent?
A conservative investor isn’t ready to tolerate largedownside market fluctuations and so is happyto avoid any upside market potential in order to achieve his investment goals. The focus of most conservative risk profiles is to develop investment portfolios so that they can have their expenses paid from the returns. They literally anticipate a pleasant retirement paycheck and do not want to see any negative progress on their portfolios. In a nutshell, the conservative investor has a high fear level of loss and aggressive investment decisions will cause them great concern. For this reason they need the help of experts and plenty of time to research their decisions. The result of their approach is generally a lower return on their investment. Less risk usually correlates with less income.
Quite close to the out-and-out conservative risk profile, the moderately conservative investor can tolerate just a little more risk but still not ready to take on short-term downside market fluctuations. He or she will expect, at all times, to get a little more return with little investment. Most people in this category are retired and depend on the paycheck from portfolio income. Others include those with prior negative market experiences and those with an approaching retirement.
This is the profile with a majority of property investors. Their objectives aplenty, but top among them is normally to establish a long-term investment for uses such as universityfunding or retirement. They are ready to take risks to get good returns, though most of the time their portfolios go up and down less with market fluctuations. Investors in this category will focus on diversification, so they will hold a mix of almost all the major viable asset classes.Investment Property fits very well with the moderate risk profile.
Just as the name suggests, this group has a little bit more appetite for risk than the moderate risk profile. Therefore, they desire to outperform similarly weighted indices when the market environment is up, so they will take on a little bit more downside risk compared to the markets with the expectation of striding way ahead when the markets go up. Though the moderately aggressive investor would want to take more downside risk compared to the markets, he or she still does not want to lose too much too quickly.
The hunger to outperformmarkets despite the knowledge that they are exposed to much more risk than the rest of the markets is a suitable description of the aggressive risk profile. Such are prone to losing even up to 40% of their investment value, which normally takes up to a few years to recover. Characteristically, persons in this group are young and keep on contributing large amounts into their portfolios compared to the other risk profiles. Would you like to know the type of investor you are? Contact us today; we’ll be glad to help you discover your investment profile and answer questions you have about getting started as an investor.
Article by James Parnwell & Jess Dovane
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