Simple Steps to Define Your Personal Risk Profile

Moderate, Aggressive or Conservative: which risk profile are you?

define-risk-profile

When signing up to investing platforms, most, if not all, will ask you to decide what your risk profile is. For someone new to the investing scene, this can be an incredibly hard concept to grasp! After all, ‘risk’ means a multitude of different things to different people and can be hard to define in an investing sense.

What is the difference between an aggressive, conservative and a moderate risk profile? How do you define your personal risk preferences? Which is best to pick?!

To answer all these questions, you must look at your personal situation.

Let’s walk through the basic definitions to help you decide:

iBillionaire Risk Profile Definitions

Conservative
Risk Level: Lowest
Pros: Generally seen as the safer* option, a conservative risk profile makes a good choice for beginner investors. By investing in more conservative strategies your money is much more diversified which therefore reduces your investment risk.
Cons: Although generally seen as a safer option, this also means sometimes you may not be able to take advantage of particularly successful individual stocks, since the high gains are more diluted in a diversified portfolio.
Example Strategies: Bonds, All Weather, Conservative

* don’t forget, all investing involves some risk!

Moderate
Risk Level: Middle
Pros: A great middle ground option which allows you to both take advantage of market booms yet still be more protected from individual stock crashes. Many of the portfolios here invest in a broad range of growth stocks considered less risky than investing in single stock strategies. The earnings of these companies aim to grow at an above-average rate relative to the market and therefore make a good long-term growth option.
Cons: As we’ve seen in the past, unfortunately with these strategies you still won’t be fully protected from market crashes. For advice on what not to do when the market crashes, read this article.
Example Strategies: S&P, Growth, IBLN Index, Dividend Aristocrats

Aggressive
Risk Level: Highest
Pros: With high risk comes the potential for high reward. There’s a reason that many choose to invest in more risky stocks and strategies and it is because of the potential for high gains. Strategies are often classified as high risk if they only invest in a handful of stocks, or a very niche area of the market.
Cons: High gains sometimes come with high losses. The biggest con to this type of risk profile is that your portfolio will be subject to large swings in value, so be prepared for a roller-coaster ride.
Example Strategies: Tech, China Tech, Tesla

Next, to help decide what your own personal risk profile is, think about these questions:

-> What are your saving goals?

-> What is your time-frame? Immediate growth or steady long-term growth?

-> How comfortable are you with big swings in your portfolio value?

Together with the Risk Profile Definitions, these questions can help you decide your own personal preferences to be able to easily decide the best strategies for you to invest in.

Take a moment to write down your answers. Once you have them, think about how your investing goals fit in with the risk profiles.

Once you’ve decided on the strategies you’d like to go for, iBillionaire will be ready and waiting for you to make your picks! If you change your mind further down the road, you can always readjust as needed.

It takes just a moment to sign up and invest with iBillionaire -> check out the app here!

 

 

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