Essentially, your risk profile is the amount of risk that you want and can afford to take. Here’s how to discover your risk profile, in order to develop a property investment strategy best suited to you and your needs.
We are all looking for ways to limit or reduce our risk when investing in property – if you are not, then you should be! Smaller risk usually equals less stress, but it’s important to know what risk levels you can tackle in order to achieve the most profitable outcomes for you.
Risk Profile is what determines the structure of your investment portfolio. There are a number of factors you need to consider in light of this, including:
Your Financial Situation
- What is your income and expenses?
- What assets and debts do you own?
- Your Property Investment Goals
- What do you want to achieve with your property investment(s)?
- Where do you want your property investment(s) to take you?
Your Risk Appetite
- How much risk do you want?
- How much risk can you afford?
Your Investment Future
- How long do you want to invest for?
- How long can you afford to invest for?
Your Financial Situation
Your income and expenses, as well as assets and debts, are what are tallied in order to understand your financial situation. This is an essential component in determining whether or not you have the money available to feasibly invest in property.
Your Investment Goals
You need to have a clear understanding of what it is you want to achieve with your property investments, prior to investing. Is the protection of your wealth your most important goal? If so, a property investment strategy with minimal risk associated is the more obvious choice for you. But, if you are aiming for larger capital growth and deem the risks associated with this acceptable to your financial situation, then you are going to want to select a higher risk property investment strategy with the potential for larger outcomes.
Your Risk Appetite
Your risk appetite is the amount of risk you want and can afford to take. There are always risks associated with any type of property investment, but generally, the higher the risk the bigger the potential for capital growth. You can choose your property investment strategy and build your risk profile by assessing your risk appetite and investing in types of property with lower or higher associated risks.
Your Investment Future
Your reasons for investing in property can vary vastly. Some choose to invest because they want to further grow their capital. This is what is known as a Capital Growth investment strategy. Others invest because they want to protect their current capital so that it doesn’t decrease. This is what is known as a Capital Protection investment strategy. There are also some investors that are looking for a regular income from their capital, such as to supplement their current or future income or retirement fund payments. This is what is known as an Income Supplementation investment strategy.
There is no exactly right property investment strategy. In the end, what is right comes down to what is right for you. What this means is that you need to assess your goals and the risks you can afford to take in order to determine your risk profile and what property investment(s) are going to work best for you.
