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What's your Investment Risk Appetite

A conversation about your Investment Risk Appetite

The harsh reality today is, all Australians are facing an increasingly complicated and lengthy retirement where we're all going to be required to make more personal investment decisions to reduce the risk of us outliving our available money. The guiding north star of this uncomfortable discussion is that people need to begin investing earlier in their financial lives and normalising the processes and conversations about that, so they can face retirement with a level of investment experience in hand.

If you haven't made a personal investment decision to date, it's probably a good time to upgrade your financial literacy today.

Conversations about investing usually start with;

  • discussions about investment volatility, diversification strategies, and whether to use non-correlated investment assets to support a diversified portfolio and whether the use of the traditional managed funds structure is still in the client's best interests or whether a Managed Discretionary Account structure (MDA) is more appropriate?
  • understanding an individual investor's risk appetite — in broad terms, the amount of risk an investor is willing to accept to achieve their objectives.
  • understanding that an investor's risk appetite (or Investor Behaviour Profiles) change over time.

No conversation about investing is relevant without discussing the effect of our own behaviors and attitudes about the rise and fall of the markets

Investing is perhaps much more about how we behave than just how we invest.

When it comes to asking people about their capacity and appetite to take varying degrees of Investment risk, the initial answer is often: 

  1. I want to Pay No Fees
  2. I want to Pay Not Tax
  3. I want to Take No Risks, and
  4. Achieve effortless high returns with no volatility

Just so we are clear and transparent - this is not how we understand the investment world works.

If you think it is, please click here to find a more appropriate financial adviser.

With all investment decisions, a discussion has to occur that ensures investors continually understand there is a commensurate risk to investing in the markets

What are you willing to compromise in  regards to achieving your investment goals and objectives?

What do pre-retirement planning and modern retirement mean to you?

Here are some key questions you need to normalise and ask yourself and your partner before you consider investing.

  • Do you want to have a standard retirement or a comfortable retirement?
  • Are you prepared to work part-time during your retirement years?
  • Do you need to own your own home before you can retire?
  • What is your past history and level of experience in investing?
  • What is your partner's past history and level of experience in investing?
  • How long are you willing to invest funds for?
    • Immediate term (0-2 years)?
    • Short-term (2-3 years)?
    • Medium-term (3-5 years)?
    • Long-term (5+ years)?
  • What is the level of income (returns) you need to draw from these investments and when?
  • Are you borrowing money to invest and if so, do you accept that you are therefore a High Growth Investor with commensurate levels of high risk?
  • What are your feelings about short-term market movements?
  • Have you identified past money behaviours and moneyisms that need to be addressed?

It is these types of questions that will determine how much risk may have to be taken to achieve the desired outcome or to honestly reassess the 'achievability' of the desired outcome.

Working to find more realistic goals and objectives is often the outcome that all parties work together for.

The biggest risk is not taking any risk... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.

How we can help

Learning about your risk appetite is an ongoing process of learning and for many self-discovery.  We see investing is directly matched to your feelings and emotional capacity to handle fluctuations and balance expectations with your liquidity needs. Sapience Financial only works with preselected investors whose investment philosophy and time horizon are known and who are looking for opportunities to diversify their current investment strategies.

Contact us for a confidential chat about your needs.

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