Maybe you need to think again

Are you a risk taker?  No, not me, is the likely reply. But think again. The concept of taking risks is redolent with images of sky diving, bungee jumping and travel to remote corners of the globe. Maybe these aren’t activities you’ve embraced to date.

But let’s take a step back and think about other forms of risk which maybe don’t have that momentary adrenalin rush, instead they are seriously big risks.

Maybe you, too, took that leap of faith back in the 80s and put all your spare dollars into a deposit on your first home, signing up to a 25 year mortgage at eyewatering interest rates, (13.5% in 1982, 17% in 1990, for the record).

You’ve probably forgotten this and hopefully well and truly paid off that loan or at least refinanced at a more manageable rate, but this was risk taking big time for most of us.

That’s monetary risk.

What about other big life moments?

Leaping aboard an ocean liner to head to the Northern Hemisphere for a couple of years, no job in sight, very little money, but a back pack full of dreams?

Or meeting the love of your life and moving in with them within a week – a big risk if your mum and dad were less than enthusiastic – and now, 40 years down the track you’re relieved and gratified to still be together. Call it love, but it’s still risk taking big time.

Where’s all this heading you may wonder?

It’s to provide some context about life risks, be they financial, emotional or experiential.

Most of us are much braver than we realise.

It helps to understand this in relation to money as your future income is right now being shaped by your perception of your own ability to take risks.

Currently about three quarters of the Australian population has some savings in superannuation. These savings are then invested in a variety of assets, some riskier than others. You can choose how much risk you are willing to take.   Choosing the best investment option based on your risk profile is critical to the rate at which your funds are likely to increase.

And this choice needs to be guided by the following considerations:

  • how long you wish to be invested for
  • how hands on you want to be
  • how much diversification will suit your needs (and counter short term ups and downs)
  • and what your risk profile looks like

The risk profile options offered by many super funds are usually based upon the Standard Risk Measure. This measure is used across the super industry to help members compare risk levels associated with different investment options. It mathematically calculates the short term and long term risk of different investments, according to investment return modelling.

The team at Retirement Essentials uses a different tool, our Risk Tolerance Questionnaire, which has been developed to be both consumer-friendly and intuitive.

It recognises the need to balance a ‘triangle’ of retirement income demands which includes

  • risk tolerance
  • retirement goals and
  • investment options

It has also allowed us identify 8 different risk profiles, or “Market Risk Level Scores”, for customers which not only identifies their risk tolerance but also outlines a potential asset allocation that reflects that risk tolerance. Our financial advisers encourage all investors to have this clear idea of their own individual risk profile as a starting point for any investment decisions. It’s only by understanding this aspect of your money personality that you can get the settings right and be comfortable that you are absolutely in the right place financially.

Who knows you could also still be in the right place in that dream home you took a chance on all those years ago?

Find out your Risk Tolerance in a one-hour consultation when one of our experienced financial advisers will step you through the questionnaire and discuss how the results might influence your investment preferences.

Book a consultation