Understanding Your Risk Profile Before Investing
Have you realized the importance to prepare for emergency fund just like the importance of having umbrella before it starts raining? For those who have not, let’s start preparing from now. If you have, let’s start keeping your emergency fund in investment instrument such as Mutual Fund.
However, before we start investing, we need to understand about each individual risk profiles. As mentioned in the previous article about the importance to prepare emergency fund, the amount that needs to be prepared per person vary in accordance to their profiles. Similarly, when you invest in Mutual Fund, the asset class that is suitable for you varies depending on your risk profiles. Hence, it is important to understand about your risk profiles. Do you know about this already? If you don’t, it is okay and let’s discuss it together!
Risk profile is an indicator to determine the level of tolerance of an individual against risk, in terms of investing in Mutual Fund one of the risks is the potential loss as a result of market volatility. Risk profile can be categorized into 3: conservative, moderate and aggressive where conservative risk profile is the individual with lowest risk tolerance and aggressive is the individual with highest risk profile. Now the question will be how could you determine your own risk profile?
Definitely by using Moduit application! After you successfully downloaded Moduit application, you need to complete your profile data for registration. During this process, you will also complete risk profile questionnaire where you will be given set of questions where your choice of answers will be used to determine your risk profiles. Below is an example of questions in risk profile questionnaire:
Out of the 3 options below, which one will you choose:
- 100% (certain) chance of getting Rp 1 million
- 50% chance of getting Rp 10 million
- 10% chance of getting Rp 100 million
The above question is only 1 example of the questions in risk profile questionnaire. There are other questions available to increase the accuracy in the process of determining your risk profile.
What is the benefit of knowing your risk profile then? You will be able to better choose investment instrument that is more suitable for your risk profile. For example, an individual with risk profile aggressive will be more suitable to invest in Equity Fund due to the higher volatility and therefore higher risk. On the other hand, an individual with risk profile conservative will be more suitable to invest in Money Market Fund with lower risk. Other than risk profiles, there are other factors that need to be taken into consideration prior choosing Mutual Fund to invest in. Moduit has prepared tips of selecting Mutual Funds for you and you could find it here. Still confused? Don’t worry! You could use Moduit Navigator feature and Moduit application will help you in determining your portfolio composition that will suit your risk profile.
So, the next question will be do you know which Mutual Fund asset class is the most suitable to be allocated for emergency fund? Stay tuned for the discussion in the next article!