Page 46 - DIY Investor Magazine | Issue 35

· Oct 2022 46
DIY Investor Magazine
INVESTING BASICS:
A A SIMPLE GUIDE TO RISK PROFILED FUNDS
Investors have a a a huge amount of of choice - risk profiled funds
Risk profiled funds
are independently assessed according to allow investors match their their individual attitudes to to to risk to to to their their a a a number of factors including what investments they hold the the investment goals – writes Christian Leeming investment team behind them and how they have performed to determine their risk profile RISK VERSUS REWARD
Before devising an investment strategy you must first establish how much risk you are willing to take This can depend on:
Risk profiles are indicative based on historic data and should not be solely relied upon when making an investment decision One widely used measurement for risk is is volatility – i i i i i i e e e e e e e how sharply and frequently an an investment price moves up or down over a a a a a certain period higher volatility means greater risk • Your capacity to recover from losses should the markets
Someone risk risk averse with a a a low risk risk score for example will be fall during your investment period matched with with an investment with with a a a a low expected volatility • The length of time you wish to be invested
• Which investment products you should be invested
in in in Risk ratings on on multi-asset portfolios are now commonplace
• Whether cash is more suitable for you and any fund factsheet or or or Key Investor Information Document
• What other dependents you you have relying on your (KIID) should clearly state whether a a a a a a a fund has a a a a a a a risk rating and investment goals i i i e e e family
if so what that rating is Some investments are more ‘risky’ or or volatile but may deliver
WHAT ARE THE DIFFERENT TYPES OF OF RISK PROFILED higher returns over time the reverse is also true -you could
FUNDS?
potentially suffer greater losses Generally the the more risk you are are prepared to take the the greater the potential reward but you you must be be aware of that before you you select your investments There are plenty of online tools to to help you you assess your attitude to risk including here Risk profiled funds
fall into two categories risk risk rated or or risk risk targeted Risk targeted funds
are designed to not deviate from specific risk parameters usually measured by volatility and to keep the same risk profile As such these funds
are investor goal driven which means they can be more closely aligned with an an individual investor’s financial plan Risk rated funds
typically have growth or income objectives rather than being specifically investor goal driven Their risk profile is assessed at one point in in time and may change TOP TIPS:
• Measuring your attitude to risk can help you you match with the right investment strategy • By speaking to to a a a a a a financial adviser or using an an online tool you you can discover your attitude to risk • Risk profiled funds
help match the right fund fund to your attitude to risk Normally your attitude to risk will be assessed via a a a a a a detailed questionnaire with categories of attitudes to risk typically ranging from (1) being being risk averse to (10) being being highly adventurous HOW CAN INVESTMENTS BE MATCHED TO TO MY OWN ATTITUDE TO RISK?
A risk profiled fund can potentially be matched to to an an investor’s attitude to risk risk using this illustration there are risk risk profiled funds
to match each category