Risk profiles and investing
You will soon come across the term ‘risk profile’ when you start as an investor . A risk profile indicates to what extent you as an investor are prepared to take risks on the stock market . The return, the goal and the available time are also included.
But what risk profiles do you have in the investment world? And what do they mean for you as an investor?
Investing means taking risks
Investing and risks have the same relationship as a stock market and a price; they always go together. Unfortunately, risks are always present, and therefore you cannot prevent them. There are a number of things that you can do to limit the risk as much as possible. One of the most important parts of this is the form of your risk profile. But what exactly is a risk profile?
What is a risk profile?
The shape of your risk profile shows what type of investor you are. It shows how far you can go with taking risks, how financially responsible this is and to what extent you are prepared to take those risks. The bandwidth of the risk is largely determined by the risk profile, and shows the return that you can experience under normal market conditions.
The purpose of a risk profile when investing
As an investor, you should not take more risk than is appropriate for your situation. This is also the main purpose of a risk profile. For a financial institution, it is a way to find out what kind of investor you are, and what kind of investment suits you best.
How exactly is your risk profile determined?
Brokers will ask you a few questions when you open an investment account with them. These are various questions; What is your financial capacity? What is your knowledge and experience in investing? What are your goals? And how far does your risk appetite go? These answers together determine your risk profile.
What different types of risk profiles do you have?
Financial institutions (brokers) are free to determine the risk profiles they offer themselves, and may also come up with their own names for them. The risk profiles do not look the same everywhere. That is why it can sometimes be difficult for novice investors to estimate the risks of investing and to choose the right risk profile. What you can stick to is the following subdivision: very offensive, offensive, neutral, defensive and very defensive.
How does a risk profile actually work?
A risk profile is different for every investor. It is tailored to you as a person and the risks you feel most comfortable with. This way, you can have fewer worries while investing and, for example, opt for an offensive profile, while your partner benefits more from more stability and will sooner opt for a defensive risk profile. However, there is always a risk, because this is inextricably linked to investing. Would you like to start investing online? You can do this via an online broker, easily compare all brokers with our tool.