AMFIE ACADEMY Establishing your investor profile

This is the first in a series of articles covering investment fundamentals and useful tips to help you manage your wealth and plan for the future.

Establishing your investor profile and determining your investment strategy

Defining your investor profile is an important step in developing your investment approach. Before you begin researching the pros and cons of different investments and their past performance it is crucial to establish what balance of risk and reward is right for you. To define your investor profile, you will need to carefully assess your ability and willingness to take risks, together with other factors such as your lifestyle, your financial resources and your investment timeframe.

Your ability to take risks

Your ability to take risks (i.e. an asset’s propensity to rise and fall sharply) is mainly dependent on your financial situation and your investment horizon. When assessing your financial situation, you will need to estimate the value of your assets as well as your net savings level (the difference between your income and expenditure).

Your investment horizon is the length of time during which your portfolio will remain invested. If you begin investing early on in life, you will have the time to ride out any sharp dips in a risky equities portfolio. In other words, the longer your portfolio will remain invested the more you will be able to invest in risky assets with a high growth potential.

Your willingness to take risks

Your willingness to take risks will depend on your investment objective and your ability to tolerate risk. Your investment objective is the return on your investments that you are aiming for. To achieve a higher return, you will need to take more risks.

Your ability to tolerate risk is more difficult to estimate. Everyone’s ability to deal with uncertainty is different. Your risk tolerance depends on your investor psychology, mainly on your risk perception and your degree of loss aversion.

Your knowledge and experience of financial instruments

Finally, you’ll need to evaluate your knowledge and experience of financial instruments, giving detailed information about your experience investing in different asset classes, vehicles and strategies. This is to ensure that you have the knowledge and understanding necessary to properly assess the financial instruments proposed to you.

Review your investor profile once a year

Don't forget that your investor profile may change over time. Your financial situation, objectives and time horizon will all change as you get older. To ensure that your investor profile is up-to date, it is a good idea to review it once a year.

Determine an investment strategy that corresponds to your investor profile

Once you have established your investor profile, AMFIE can propose different investment solutions with the associated risk/return ratio that is right for you through our AMFUND investment plan or, if you are saving for retirement, through the AMFIE Provident Savings Plan.

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