Risk profile

Risk Profiles: What you need to know about investing and risk

Investing is a popular way to grow your wealth. But investing also involves risk. To help you determine how much risk you can and are willing to take, there are risk profiles. In this article, we discuss what risk profiles are, how they are determined and what the different profiles mean. We also discuss why risk profiles are often different than people think.

What is a risk profile?

A risk profile is an indication of how much risk you are willing to take with your investments. It is usually determined through a questionnaire in which you answer questions about your investment goals, your investment horizon and your risk appetite.

How is a risk profile determined?

There are several factors that affect your risk profile:

1. Investment goals: What do you want to achieve with your investments? For example, do you want to build up money for retirement, or do you want high returns in the short term?

2. Investment horizon: How long do you want to invest your money? If you plan to use your money within a few years, you will want to take less risk than if you invest your money for the long term.

3. Risk appetite: How much risk are you willing to take with your investments? Are you willing to lose money in hopes of higher returns, or do you prefer to invest for sure?

The different risk profiles

There are different risk profiles, usually classified into 5 categories:

• Savings
  Often not seen as a risk profile but we add it anyway because savings also has risks. Yet this is the most risk-free category.
• Defensive
  This profile is suitable for investors who want to take little risk. They invest in safe investments, such as bonds and savings.
• Cautious
  This profile is suitable for investors who want to take a little more risk than defensive investors. They invest in a mix of bonds and stocks.
• Moderate
  This profile is suitable for investors who want to take moderate risk. They invest in a mix of bonds, stocks and other investment products.
• Offensive
  This profile is suitable for investors who are willing to take on more risk. They invest in a mix of stocks and other riskier investment products.
• Very offensive
  This profile is suitable for investors who are willing to take the most risk. They invest in stocks and other very risky investment products.

Why risk profiles are often different than people think

Risk profiles are often different than people think. Most people think they have a defensive or cautious profile, but in practice they often turn out to have a moderate or even offensive profile. This is because people often overestimate how much risk they are willing to take.

Tips for determining your risk profile

• Use a questionnaire: There are several online questionnaires you can fill out to determine your risk profile.
• Talk to your advisor: We can help you determine your risk profile and explain what that means for you in practice.
• Consider your personal situation: Your risk profile may change due to your age, financial situation and personal goals.

Risk profiles are a useful tool to help you determine how much risk you can and want to take with your investments. It is important to know your risk profile and to choose investments that fit your profile. But is risk what you think it is? Learn more about it on this page.