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Know yourself as an investor

The first step is to determine the goals you want to achieve based on your particular characteristics. In investment, this means establishing your investor profile, which will enable you to set the guidelines of your investment policy.

Your age

This is the most important factor. It enables you to define your investment horizon and determine the reasonable risk you can take in your situation. The older you are, the lower your risk tolerance.

You should review your overall investment strategy on a regular basis, or whenever major changes occur in your life, to make sure it still matches your profile.

Your investment knowledge

  • The greater your investment knowledge, the more you can invest in complex financial products that offer a higher potential return.
  • If your investment knowledge is limited, you should choose less complex financial products.
  • A lack of knowledge could result in poor decisions caused by a failure to understand how your financial product reacts to market developments.

Your investment horizon

This is the length of time you expect to hold your investments, generally until retirement age or the date you purchase an item. The longer this horizon, the more you can use financial products that offer a high, albeit more volatile, return.

  • If you have a long investment horizon, a temporary decline in your return will not jeopardize your financial health.
  • If your horizon is short, you should choose more conservative investments, because you cannot risk a drop in the value of your assets.

Your risk tolerance

This largely depends on your temperament and your personality. To help determine your risk tolerance, ask yourself the following questions:

  • How would I react if my portfolio lost 25% of its value?
  • Do I prefer steady returns or am I willing to accept large fluctuations?

An investor profile that matches your expectations should enable you to sleep soundly and avoid making bad decisions, regardless of the vagaries of the financial markets. Ask a Wealth Management Advisor to help you with this process.

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