Risk Profile: The Conservative Investor
Since most property investors don’t know what their risk profile is, it is important to learn exactly the type of risk profile you are. Generally, there are five risk profiles: the conservative, moderately conservative, moderate, moderately aggressive and aggressive. A clear understanding of the characteristics of each of these can help to define the best investment strategies of an individual. In this article, we will look at the conservative investor in detail.
Characteristics of the Conservative Risk Profile
A conservative investor has a very low risk tolerance. They are often very uncomfortable with the stock market and most of the time wish to avoid it entirely. The focus of such investors is to protect their money as much as possible so as to avoid risk. During the downside market fluctuations, a conservative risk profile would rather forego any meaningful upside potential of the market since they are not ready to tolerate the risk.
Prominent among conservative investors is the definition of an individual on a tight budget and struggling to make a living. They show all characteristics of people who are afraid to lose the little money they have invested because they cannot recoup themselves in case of losses.
Since there is no investing without risking, satisfying the needs of the conservative investor risk profile is difficult especially when inflation is on the rise as the market value of fixed income securities keeps on declining as a result of increasing interest rates. The capital gains of a conservative investors portfolio is very small.
Recommended Investments for a Conservative Risk Profile in Australia
Since cash investments such as money market funds, savings accounts and CDs are prone to losing their real value with time due to inflation and the effect of tax, they tend to be the least desirable for investors in this category. Choosing the best conservative investments in Australia will depend on the level of risk involved in that kind of investment. Asset classes such as the Australian real estate and tangible mutual funds would be the best option. Such investments may not require rash decisions mostly driven by market trends, so it is important that the investors in this risk profile push themselves to make decisions at the right time and face a little bit of risk rather than wait till the last minute in order to enjoy investment benefits.
Wondering what risk profile you are? We will help you discover the type of risk profile you belong to and advise how you can use it to your investment advantage.
Article by James Parnwell & Jess Dovane
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