Investing can be risky, and some investments are riskier than others, that’s why understanding your risk profile and your attitude to risk is important to your decision-making in investing. Even if you don’t plan to become an individual investor, within your Super you are able to choose the types of investments your money is invested in.
Your ‘risk profile’ is a shorthand way to say – this is my level of wealth and this is my personality, regarding taking risks. You have probably already noticed that you may be more willing to take risks than some, or less willing to take risks than most. Are you a gambler? Or does the thought of gambling leave you cold? Perhaps you are willing to gamble a small amount, but as far as outlaying a substantial sum on something risky [number 7 in the 3rd, anyone?]…well, it just ain’t gonna happen. The jargon term for you, if you are that person, is ‘risk averse’.
Your risk profile will probably change over time, especially as you get closer to retirement, when you might be less able or willing to take substantial losses to (what is likely to be) your future sole source of income. You may find that you prefer investments that don’t return as much, but that are more stable in value, even with downturns in the market.
Did you notice we said, “less able or willing”? Your risk profile takes into account both your financial ability to take risks and your personal willingness to take risks. If you have many good assets, and few if any liabilities, then you could be described by some as ‘able’ to take risk. However, if you simply don’t like taking financial risks (n.b. the jargon term for you is ‘conservative’) then your investment strategy can still be shaped by your preference for low-risk investments. Our point is that you may not see yourself as an investor, but if you have Superannuation then you are, perforce, an investor. You can have a say in how your Super is invested. Read your Super statement, talk to your Super fund. Take control – it’s your money! and how you handle it now will help to shape your retirement.