Knowing What Financial Risk Profiles Are, Could Make You A Better Investor

by | Nov 3, 2015 | Financial Management

Investment suitability is not only with regards to investor’s goal but also with regard to the investor’s risk capacity and risk tolerance.

Risk capacity in simple terms is the financial risk profile’s capacity to withstand investment losses.

Risk tolerance reflects your willingness or emotional ability to accept greater risk associated with the higher returns.

Most of our financial decisions are made in diverse situations of uncertainty. People are comfortable with varied levels of ambiguity. Their comfort zone depends on their attitudes, values and experiences.

Risk profiling process helps in identifying comfort zone of an investor.

Once risk profile of an individual is complete, investing strategy becomes much simpler taking into account financial goals and the time horizon on hand. The investment strategy undergoes change with the changing risk profile of the individual.

Financial Risk profiling!!! Have you taken this seriously?

To sum up, risk profiling process avoids the following situations while investing.

Unpleasant surprise of you, suffering significant loss because you under estimated the risk involved

or

You are disappointed to find that you are not able to make most of the opportunities because you over-estimated the risks involved.

Satish Rajagopalan, CISA, ITIL Foundation
CEO & Founder at Spearhead EduOnline Pvt Ltd. (the company that owns and operates ApnaCourse.com). He holds a btech in Computer Science, an MBA in Strategy and Entrepreneurship and a post graduation in Finance. Read More.

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