How can I decide the amount of risk I am willing and able to take?

To determine your risk profile, let’s talk about a few different types of investments and see how you feel about them.  Your personal (gut) feelings about which investments are right for you tells you your risk profile.  Some people are willing to take on higher risk to have higher potential returns.  Other prefer lower risk and much smaller returns. 

Consider all the money you put aside for saving/investing this year.  Money for investing or saving (your investment funds) should be separated into 3 categories: immediately accessible (low risk), medium to long term investments (medium risk), and Long term growth investments (high risk). 

Remember, all investments carry risk.  The lower the risk of the investment, the less potential return.  The higher the risk of an investment, the higher potential return. 

Dividing your money between High Risk vs. Low Risk Investments

- Think about what part of it you want to put into very safe, low risk investments (money you might need to access soon, or quickly).  This is the category that savings also go in.  The funds invested in this category will not fluctuate much in value, so they will not lose money in case you need them, but you will not make much return on them.  This category includes things like savings accounts (regular and high interest), Money Market Funds, Government Bonds, GICs, High quality bond mutual funds.  

- Next, think about the amount of money you want to grow over time, but not put at high risk.  This might be the amount you are saving for a house, vacation, or retirement.  Many investors choose to put money for these purposes into index funds, stocks, mutual funds, or ETFs.  These funds will fluctuate in value more than the first category, but a by leaving the funds in for longer will help investors ride out those bumps and likely earn modest returns. 

- Now think about the funds you are willing to take a chance with.  The funds you are willing to take on more risk with for the potential of a much larger payoff in the future.  These should be funds that you are willing to lose, and funds you will not need access to for several years.  It is from this money that you invest on Equivesto (private investments & equity crowdfunding).  Other investments in this category also include private real estate, stock options, and Hedge Funds. the money invested in this category will fluctuate in value much more aggressively, and the investments here could end up being worth nothing.  However, they also carry the potential of much higher returns in the future. 

Don’t forget, the minimum investment on Equivesto is only $100, so its possible to participate in higher risk investing without risking large amounts of your savings. 

Risk Profile

Your personal (or gut) feelings about which category you want to place more money is helping you understand you own feelings about investment risk.  That feeling is the basis of your risk profile.

Your profile often matches your life stage.

If you are nearing the time if your career that you hope to retire, you will want the majority of your money readily available and in low risk investments, so it won’t lose value and you can access it to live off of when you are no longer working.

If you are starting your career and have good income from your job, then you most likely do not need to live off your investments.  Those can potentially be invested in higher risk options to help you grow your money more over time, and since you don’t need it, you can ride out fluctuations in value and market swings. 

While the information above has been provided as a general guideline, this does not necessarily fit your own personal situation and preferences.  To have a detailed discussion about your personal situation and get professional advice, reach out to us directly here or email alexander.morsink@equivesto.com.

To learn more about how to lower your risk exposure while still investing on Equivesto, click here.