Working out your risk profile is the first step towards developing a diversified investment portfolio.
Franking credits…exchange-traded funds…insurance bonds…listed investment companies…real estate investment trusts…mortgage-backed bonds…
The world of investing can be confusing for first-time investors. So before you plunge in and start building your investment portfolio, it’s important to have a plan.
You’ll need to work out what you’re trying to achieve, how long you have to invest and what’s your attitude towards risk.
Develop your risk profile.
Your risk profile determines how much risk you are willing to take. Even if you’re young, you might not want to take a lot of risks. You will select your investments based on your risk profile.
- Stocks are more volatile than bonds, and bank accounts (checking and savings accounts) are not volatile.
- Remember, there are always risk trade-off’s to be made. Often, when you take less risk, you make less. Investors are richly rewarded for taking significant risks, but they can also face steep losses.
Decide on how you want to diversify.
You do not want to put all your eggs in one basket. For example: Every month, you might want to put 30% of your investment money into stocks, another 30% into bonds, and the remaining 40% into a savings account. Adjust those percentages and investment options so that they are in line with your financial goals.