Understanding your personal tolerance to risk is a critical step in delivering appropriate advice
Your Risk Profile

Your Risk Profile

Risk is a fundamental part of finance and investing. As such, identifying, quantifying and assessing risk is often the first step in the investment process. Risk profiling is a process advisers use to help determine the optimal levels of investment risk for clients. It aims to identify the risk required to meet your investment objectives, your risk capacity, and your tolerance to risk. This relationship is shown in the diagram below.
 

 
Risk Required – refers to the level of risk required to be taken on investments to achieve your desired level of investment return.
 
Risk Capacity – refers to the level of investment risk (or losses) that you can afford to take
 
Risk Tolerance – refers to the level of risk you’re comfortable taking

Through this process, a risk profile is created which will inform future decision making and help determine the appropriate asset allocation strategy for your investment portfolio.

Our Risk Profiling Process

To ensure our clients are provided with advice appropriate to their situation, we use a 10 question online survey designed to assess your personal risk profile. On completion, clients are provided with an outline of their assigned risk profile and a sample portfolio of growth and income assets appropriate to this profile type.

Patersons Risk Profiles

Patersons has adopted six distinctive risk profiles, ranging from conservative to very aggressive. A conservative profile would likely seek to conserve wealth rather than aim for capital growth, while an aggressive profile may seek financial gain despite the risks associated with the investments. Those with a shorter investment horizon or lower levels of capital may be on the more conservative end of the spectrum, while those with longer investment horizons and larger capital reserves may find larger levels of risk appropriate.
 
Our 6 risk profiles are described below:

Conservative

Defensive 85% / Growth 15% 

This suits investors with a minimum two-year timeframe or those that seek a portfolio invested predominantly in interest bearing assets, with a small proportion of growth assets. This portfolio also suits investors who give a high priority to the preservation of capital and are therefore willing to accept lower potential investment performance, hence the 85 percent exposure to income assets (cash and fixed interest).

Moderate

Defensive 70% / Growth 30% 


This suits investors with a minimum three-year timeframe or those who seek a portfolio with an emphasis on interest bearing assets, with some exposure to growth asset classes. This portfolio also suits investors seeking a lower level of investment value volatility, and therefore willing to accept lower potential investment performance, hence the 70 percent exposure to income assets (cash and fixed interest).

Balanced

Defensive 50% / Growth 50% 

This suits investors with a minimum five-year timeframe. This portfolio also suits investors who desire a modest level of capital stability but are willing to accept moderate investment value volatility in return for commensurate potential investment performance, hence the 50 percent exposure to growth assets (shares, listed property and infrastructure) and 50 percent exposure to income assets (cash and fixed interest).

Growth

Defensive 30% / Growth 70% 

This suits investors with a minimum seven-year timeframe or those who are willing to accept higher levels of investment value volatility in return for higher potential investment performance. Some exposure to interest bearing assets is still desired, but the primary concern is a higher return, hence the 70 percent exposure to growth assets (shares, listed property and infrastructure).

Aggressive

Defensive 15% / Growth 85% 

This suits investors with a minimum nine-year timeframe or those who are willing to accept high levels of investment value volatility in return for high potential investment performance. The 85 percent exposure to growth assets (shares, listed property and infrastructure) means that capital stability is only a minor concern.

Very Aggressive

Defensive 0% / Growth 100% 

This suits investors with a minimum ten-year timeframe or those who are willing to accept very high levels of investment value volatility to maximise potential investment performance. The 100 percent exposure to growth assets (shares, listed property and infrastructure) means that capital stability is not a consideration.

 

How We Use Your Risk Profile

A risk profile should not be viewed as a check-box exercise which is completed and forgotten. Nor should it be seen as a simple way of grouping clients together and quickly designing portfolios. The real value of a risk profile is as a strategic document to refer back to over time that helps keep you on track to achieving your goals. In addition, it should be used as a tool to initiate deeper conversations between you and your Adviser.