Ask anyone and they'll tell you that rather than letting your money sit idly in your bank account, that you should learn how to invest instead—and they're correct! With inflation at an all time high, there's never been a better time than now for you to explore as many avenues as possible to gain income so that you will be financially prepared for any and all situations.
When it comes to investing, there are many layers and aspects that you'll need to learn and familiarise yourself with in advance so that you're able to reduce your risks and select the right strategy for you. You'll need to know where, when, and how to invest your money to maximise your returns as much as possible. Before delving into the technicalities, the first thing that you'll need to determine prior to investing is your risk profile.
A risk profile represents your risk appetite as an investor. It is an assessment of your capacity, interest, and willingness to both take and manage risks—essentially, to what degree are you prepared and able to accept certain levels of risks?
A risk profile is key in crafting a customised portfolio specifically for you, one that reflects your long-term financial goals and assists in developing a rational and effective strategy for your investment. In a risk profile, there are three components that are of most importance, and they are:
Risk capacity, the amount of risk that you can take to attain your goals based on your current financial standing;
Risk tolerance, the amount of variability in returns that you are willing to accept; and
Risk requirement, the risks that you should take to achieve your objective, determined based on your income, return requirements, and investment objectives.
There's an entire spectrum of risk profiles for you to choose from, depending on which you'd be most comfortable with, and which resonates with you and your financial goals the most. The risk profiles that you can explore are:
Conservative: Investors that take the most minimal risks, wanting to play it safe with their capital and are aware of the low returns that follow. Typically selected by amateur investors as they're unfamiliar with the range of financial instruments available and are not ready to take big risks as they're new to the game.
Moderately conservative: Investors that focus on capital protection, but are willing to take a modest amount of risk and volatility to gain a higher degree of profit.
Moderate: Investors that fall in the centre between conservative and aggressive investors, they generally have a balanced and diversified portfolio that places equal priority on lowering risks and increasing returns.
Moderately aggressive: Investors that emphasise maximising returns as either a medium- or long-term goal and are ready to confront temporary losses, if any.
Aggressive: Investors with the goal to obtain exponential returns from the market in the shortest time possible. Generally selected by the most seasoned of investors as they have the highest risk-baring capacity and are ready to confront price volatilities and endure losses as they come.
There is more to the risk profiles than on the surface, as there are assessments that you'll need to complete to fully understand your financial standing and goals, to determine which would suit you best. Investment is a long-term game, one that you should preferably begin in your early years, so that your wealth will build on its own over the years and you'll live a financially stable and independent life even as you enter the later stages of your life when you'll no longer have any active sources of income.
While retirement is long ahead of you, nonetheless, it's always a good rule of thumb to prepare yourself for it in advance. Many often think that by working and saving over the years, that you'll have enough to last you for your retirement, but that is far from the truth. You would think that after your many years of hard work, that the money you've set aside would allow you to live comfortably as you enter your golden years, but you can only do so if you manage your expectations properly.
Even early into your 20s, preparing for your retirement is the right move. Start early, and you're guaranteed to live the life that you've always wanted to. In your retirement planning, you'll need to manage your expectations well, and that's in terms of considering:
What is the lifestyle that you would like to have? Would you like a lavish lifestyle where you're able to spend money as you please, or are you a penny-pincher that prefers a small, quiet, and cosy life?
Do you have any plans or dreams after you retire? Would you like to travel the world on first-class flights, start a business of your own, or stay at home curled up with a book and a warm cup of tea?
Are you planning to set aside any money for your family and loved ones?
These are only a few questions of the many that you'll need to ask and answer so that you'll be able to determine your retirement budget and work your way towards it. When you have an idea in mind of how you'd like to live out the rest of your life, the planning becomes much easier because at least you're able to visualise it and understand what steps you'll need to take in order to achieve the life you've dreamt of.
Of course, all is easier said than done. Deciding your risk profile for investing and planning for your retirement in advance takes a lot of deliberation, time, and effort. As such, it's great if you could engage with those that are experienced and knowledgeable in the field to walk you through the options that you can explore, so you are aware of your choices and can make the best decision for yourself.
Here at Ken Wee Organisation (KWO), our team of experts are ready to assist you in your plans to achieve your financial goals and dreams. We're ready to hear you out, understand your needs, and develop a game plan just for you that'll help you get to where you want to be. For when you're ready, feel free to reach out to us and we'll be right there!