Plenty of potential KiwiSavers are held back by their fear of making a mistake. The antidote to this is understanding their personal “risk profile” and that of their partner.
Quite simply some people can stomach more risk than others due to their personality, or personal factors such as their financial responsibilities and approach to trying new things.
There is a simple money personality profiler on the Sorted.org.nz website, developed by a clinical psychologist, designed to help people understand their own profile.
Clients of financial advisers will almost always be “”risk profiled”” with a paper or computer-based questionnaire. This is so financial advisers can match investments with investor’s risk profile.
DIY investors can do a more in-depth risk profile analysis at Myriskprofile.com, which uses much the same approach as financial advisers would.Knowing their risk profile ensures investors are taking the right steps towards choosing investments to match their profile.
Sometimes investors don’t understand the products they are buying and choose ones that are either too conservative or too risky for their profile. This is where a financial adviser can help.
What’s more, it is possible for two people with the same risk profile to invest very differently.Take an investor aged 25 and one aged 55 with the same risk profile. Younger people can afford to take more investment risk with their KiwiSaver. Time is their friend and will correct any ups and downs in the markets in the meantime. So together with your risk profile, your investment time horizon will determine which investment, or mix of investments, is right for you.
Risk aversion can be good. It stops people making huge mistakes. Yet that same aversion holds many investors back from creating a more secure financial future for themselves. Conversely, those who leap on the latest bandwagon boots and all may fail to fully consider all the risks. At the end of the day investors have be able to sleep at night and be comfortable with their investments. So it’s very important to match the individual’s investments with their risk profile.
The solution is financial education, seek professional advice “”“ or at the very least, reading a book about KiwiSaver investing. Something you understand is a lot less frightening