When investing, regardless of the instrument type such as Equity Mutual Funds, you will undoubtedly come across the term risk profile.
Each investor has a risk profile or a level of tolerance when facing risks. This varies from one investor to another. The investment risk profile itself consists of several types. To determine which risk profile category an investor belongs to, there are several ways to do it.
Further discussion on the types of risk profiles and how to identify them can be found in the following discussion.
Types of Investor Risk Profiles
As mentioned earlier, the risk profile of an investor consists of several types or categories. Each risk profile has characteristics that describe how investors make decisions in their investments. More specifically, the types of investor risk profiles include:
- Highly Conservative Investor Risk Profile
A highly conservative risk profile is an investor who prioritizes keeping the principal value of their investment intact. Generally, this investor will invest for a short duration, not exceeding one year.
- Conservative Investor Risk Profile
The conservative risk profile is generally an investor who wants their portfolio to always be stable.
Another characteristic of a conservative investor is that they will liquidate their investment funds when there is a decrease in asset value. For their investment period, they also tend to choose short-term options.
- Moderate Investor Risk Profile
As the name suggests, moderate investors generally try to balance between the potential return and the losses they will incur so that their profits can be maximized.
Moderate investors are willing to take risks but have cautious approach in choosing investment assets.
Suitable investment instruments for moderate investors include Fixed Income Mutual Funds, Mixed Mutual Funds, and Bonds. Moderate investors are starting to be willing to invest in the medium term but usually choose an investment period between 1-3 years.
- Balanced Investor Risk Profile
Next is the investor with a balanced risk profile. This type of investor will be more willing to take risks with the hope of getting higher profits compared to the previous investor profile.
Investors classified as having a balanced risk profile usually choose to invest for a short to medium term, ranging from 3 to 5 years. Instruments commonly chosen by this type of investor include money market instruments, government securities (SBN), and fixed deposits.
Another characteristic found in investors with a balanced risk profile is that they tend to have a balanced portfolio in terms of potential return and risk potential.
- Aggressive Investor Risk Profile
The next investor risk profile is known as an investor who is willing to face high risks when undergoing an investment. Of course, this is also supported by the potential for significant profits over a long period.
Several types of investment instruments are considered suitable for investors with an aggressive risk profile. Instruments known to offer high returns potential include Mutual Funds and stocks.
- Highly Aggressive Investor Risk Profile
Higher than the aggressive type, the highly aggressive risk profile is an investor who tends to be very bold and ready to face the risks of the investments made. Quoting from the OJK page, these investors are not afraid to take risks because they believe it is worth the potential returns.
This bold attitude is usually obtained from extensive investment experience, enabling them to assess market movements.
Highly aggressive investors are willing to invest for the long term, more than 5 years. One of the investment instruments usually chosen by this type of investor is Equity Mutual Funds.
How to Determine Investor Risk Profiles
After knowing the various types of risk profiles in investors, are you curious about which type of investor you are? To determine your risk profile, there are several things to consider. Here are factors that are crucial in determining the risk profile of an investor:
- Considering Age
Related to age, investors who are young are considered to have a higher tolerance. Young investors feel that they still have a long time to achieve their investment goals.
Meanwhile, investors approaching retirement age usually choose short-duration investments.
- Recognizing Financial Conditions
The next consideration factor is financial conditions. If you have a stable financial condition, you can try choosing high-risk investment potential.
Conversely, if the financial condition is not stable, you can try investing in low-risk instruments such as Bonds.
- Understanding the Number of Dependents
To determine the risk profile, you also need to understand the number of dependents. If you have many family members as dependents, it is advisable to choose low-risk investments.
Meanwhile, if you have no dependents, you can be more flexible and dare to invest in products that offer high risks but also high potential returns.
- Calculating the Income Amount
Income is a crucial factor for assessing an investor's risk profile. The higher an investor's income, the higher their tolerance for investment risks.
If their income is low, to avoid losses, they tend to choose investment products with low risks.
- Investment Understanding
Another important factor is related to understanding investment.
If an investor has a diverse knowledge of investment, they generally have a high tolerance. Conversely, if their understanding of investment is lacking, investors tend to prefer products with low risks.
Start Investing in Equity Mutual Funds with DBS Treasures Priority Banking
From the discussion points above, it is known that there are several types of risk profiles for an investor and factors that need to be considered to identify them.
So that the investment results can proceed as planned, an investor needs to choose investment instruments that match their risk profile.
Not only that, the selection of partners in investing is also important to consider. One appropriate choice for an investment partner is DBS Treasures priority banking.
With DBS Treasures priority banking, you will be supported to achieve your investment goals. You will also get convenience during your investment. Gain professional investment management by leading Investment Managers. There is also risk reduction through diversification of your funds into various types of assets.
You will be supported by curated market analysis from a team of financial experts who will communicate it. Seize the latest opportunities that have been tailored to your risk profile and portfolio needs, driven by Artificial Intelligence/Machine Learning (AI-ML). This insight is equipped with curated solutions related to investment (Grow) and insurance (Protect), so you can quickly and confidently invest through your preferred media.
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