Discover yourself : Know who you are

At the risk of sounding too philosophical, discover yourself. A person who knows thyself is most likely to succeed at achieving their financial goal. The main reason every individual is asked to come up with their own investment plan is to ensure that we can come up with a plan that is best suited for us and who we are.

For example, if you are a person who panics quite easily and takes rash decisions, equity might not suit you. So, take this as an opportunity and have a broad understanding of yourself before coming up with your investor profile.

Investor Profiles are commonly used measure to understand your risk appetite and investment style. They are by large the used to define a macro level plan of asset allocation. Of course, this is a very broad level classification to get you started. Once you get into the deep end, you can modify it to your comfort

Discover yourself and be clear on purpose of your investment. Now is the time to understand what kind of investor you would want to be and how you should start allocating your investments. Your goals and current investment financial position decides your profile.

Before we get into what each profile means, allow me to tell you what the key attributes that decides your profile are.

Discover yourself and your Goals

As I told in my previous article, your goals are your single guiding Northern star. All your investment decision, requirements, risk should be taken in alignment with you goals. For example, more far-reaching your goals are, riskier (aggressive) you must be with your investment.

Goals
Your Goals defines what investments you should make

Investment Period

Your investment time plays a huge role in defining your profile. Longer you stay invested, higher the returns you can target for same risk. In addition, certain investment avenues are strictly not recommended for a given time duration. For example, equity is not recommended if your investment horizon is less than 2 years. Of course, you can always try your hand at trading / risking your capital, but it is a very risky proposition and you might end up with severe capital erosion

Age

In general, the younger the investor is, riskier you can be. Very simple premise behind this principle is that young people can afford to take more risky bold calls with an assurance that they have a significant amount of time and earning potential to overcome failures.

Your age and retirement plan defines what kind of investment is suitable for you
Your age and retirement plan defines what kind of investment is suitable for you

Risk Tolerance

One of the most underrated attribute, the individual mindset, which is how you will react to market conditions. In your investing journey, if you choose riskier option, you simply cannot escape volatility (capital erosion before it rises to higher levels). If you cannot stomach seeing your investment lose its paper value, you need to choose options that is more conservative. This is a very important tenet because if you panic, then there are high chances for you to take irrational decision.

Let me be very clear, there is no right or wrong in these. This is a time where you have to be very honest with yourself. One of the worst thing you can do to your financial well-being is to not being true to yourself and choosing a profile that is not suited to who you are as an individual.

Now, to find your profile, there are numerous option in internet with which you can find your profile, but I prefer to use the “Risk tolerance calculator” of economic times.  Higher your score, more aggressive you are.

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