Bonds and Shares
06/10/2015
Risk Tolerance - Part 1

In previous articles we discussed different aspects of the Model Portfolios offered by Mediterranean Bank and also when best and how often one should review one's investment portfolio.

Today we are going to discuss an aspect which is of vital importance when considering investing in a Model Portfolio of mutual funds. This is the selection of your own risk profile. A risk profile is influenced by personal circumstances, financial goals and the length of time you wish to remain invested. You could use your risk profile to help choose your best investment options. You may be willing to accept more risk for potentially greater gains or prefer less volatility for a smaller but steady return.

Each and every one of us is different, with different needs and objectives in various situations and experiences hence investing cannot be approached with a үne hat fits all' mindset. This is why you need to select a Model Portfolio strategy which reflects the right risk tolerance depending on your personal circumstances.

There is no such thing as a risk-free investment. Investing is all about choosing the risks you feel most comfortable taking. A diversified portfolio can be a helpful way to weather the big swings over time as the market fluctuates. Conventionally a younger investor has a longer-term horizon in terms of the need of investments and can tolerate more risk, than an older individual, who would typically have a shorter term outlook, especially when that individual has retired or is close to retirement, and thus would normally tolerate low risk.

Your investment profile will define the type of investor you are, taking into account your age, financial circumstances, investment goals (whether you are after income or growth or both) and, most importantly, how much risk you feel comfortable taking or can afford to take. You must first establish how much risk you are willing to take. This can depend on your capacity to recover from losses should the markets fall during your investment period; the length of time you wish to be invested; which investment products you should be invested in; whether cash is more suitable to you; what other dependents you have relying on your investment goals, i.e. your family.

Risk is a vital element because as a rule, the more risk you can take on, the higher the potential returns you stand to make from your investments. These factors, together with issues such as tax and liquidity (how quickly you can access your money or convert your assets into cash if needed), will all help shape your investment profile.

An investor's attitude toward risk is central to the way he or she makes investment decisions. It will strongly influence not just their likelihood of losing money but also the extent of the returns their investments are expected to generate. A key question that investors must ask themselves is how they might respond to an unexpected fall in the value of their investments. Only then can they take decisions on investments that match their risk comfort levels.

Risk is often viewed and measured as the level of price volatility recorded by an asset or investment fund - in other words, the range within which its price fluctuates. Short-term investors may find volatility a greater risk than those with a long-term investment horizon because under normal market conditions, price fluctuations frequently balance themselves out over the long term.

Your attitude to risk is an essential part of the investment process because the more accurately you establish your risk profile, the greater the chance of selecting the most suitable investment for your needs and objectives. Whether you consider yourself to be a high risk investor, cautious or somewhere in between, the main thing is to be comfortable that the funds selected within your portfolio as a whole - your investment portfolio - represents the level of risk you are willing to take as closely as possible. We will discuss the five different risk profiles to be considered when investing in our Model Portfolios of Mutual Funds in a forthcoming article.

 


 

It-Tolleranza tar-Riskju - L-ewwel Parti

F'artikli preċedenti tkellimna fuq aspetti differenti tal-Model Portfolios offruti mill-Mediterranean Bank u spjegajna meta hu l-aħjar u kemm-il darba għandna niċċekkjaw il-portfolju tal-investiment tagħna.

Illum se niddiskutu aspett importanti ieħor li rridu nikkunsidraw meta nkunu se ninvestu f'Model Portfolio ta' mutual funds. Se nitkellmu fuq l-għażla tal-profili ta' riskju li jeżistu. Kull profil ta' riskju hu influwenzat miċ-ċirkustanzi personali tagħna, mill-għanijiet finanzjarji li jkollna, u mit-tul taż-żmien li nkunu nixtiequ ninvestu fih. Tista' tuża l-profil tar-riskju tiegħek biex tagħżel l-aħjar investimenti għalik. Jista' jkun li lest/a tieħu aktar riskju sabiex ikollok potenzjal għal aktar qligħ, inkella ma tkunx tixtieq tirriskja daqshekk u tippreferi dħul finanzjarju iżgħar imma aktar stabbli.

Aħna lkoll differenti u għalhekk m'hemmx strateġija waħda li tgħodd għal kulħadd. Kull wieħed u waħda minna għandu l-ħtiġijiet u l-għanijiet individwali tiegħu, sitwazzjonijiet differenti, u esperjenzi varji. Għalhekk, kull investitur irid jagħżel strateġija għall-Portfolju ta' Mudell tiegħu li tkun tirrifletti t-tolleranza ta' riskju li tixraq għaċ-ċirkostanzi personali tiegħu.

Ma jeżisti l-ebda investiment mingħajr riskju. Meta tinvesti trid tagħżel ir-riskji li tħossok l-aktar komdu bihom. Portfolju diversifikat jgħinek tagħmel tajjeb għaċ-ċaqliq kbir li jista' jkun hemm, maż-żmien, fis-suq. Normalment, investitur żgħir fl-età jkollu quddiemu perjodu itwal ta' żmien li fih jista' jinvesti u jkun jista' jissogra aktar minn investitur kbir, li normalment ikollu perjodu iqsar ta' investiment, b'mod speċjali jekk ikun irtira jew wasal biex jirtira mix-xogħol. Għalhekk ikun lest jieħu riskju iżgħar.

Il-profil tal-investiment tiegħek jindika x'tip ta' investitur inti, jirrifleti l-età, iċ-ċirkostanzi finanzjarji, l-għanijiet tal-investiment tiegħek (jekk tixtieqx ikollok dħul jew tkabbir, jew it-tnejn) u, l-aktar ħaġa importanti, x'livell ta' riskju tixtieq jew taffordja tieħu. L-ewwel ma trid tistabbilixxi hi kemm tista' tieħu riskju. Dan jiddependi mill-ħila tiegħek li tkun tista' tirkupra t-telf li jkollok f'każ li s-swieq jinżlu matul il-perjodu tal-investiment tiegħek; mit-tul ta' żmien li tixtieq tinvesti fih; minn liema prodotti ta' investiment tista' tinvesti fihom; minn jekk il-flus kontanti humiex aħjar għalik; u minn fatturi oħra li, b'xi mod, jistgħu jaffettwaw l-għanijiet tal-investiment tiegħek; ngħidu aħna l-familja.

Ir-riskju huwa element vitali għax, bħala regola, akbar ma jkun hu akbar ikun id-dħul potenzjali mill-investimenti tiegħek. Dawn il-fatturi, flimkien ma' kwistjonijiet bħat-taxxa u l-likwidità (jiġifieri, kemm tista' tiġbed flusek malajr jew tibdel l-assi tiegħek fi flus kontanti meta tkun teħtieġhom), jagħtu s-sura lill-profil tal-investiment tiegħek.

L-attitudni tal-investitur għar-riskju hi l-qofol tad-deċiżjonijiet li jieħu fuq l-investiment tiegħu jew tagħha. Din ma tinfluwenzax biss, bil-kbir, kemm jistgħu jitilfu flus, imma wkoll kemm jistgħu jiġġeneraw qligħ mill-investiment tagħhom. Mistoqsija ewlenija li għandu jagħmel kull min jinvesti hi fuq x'se jagħmel f'każ li l-valur tal-investiment tiegħu jaqa' bla mistenni. Hu propju f'dal-mument meta jkollna nieħdu deċiżjonijiet kruċjali bbażati fuq il-livelli ta' riskju li nkunu ħadna.

Normalment, ir-riskju jitqies bħala l-livell tal-instabilità fil-prezz irreġistrat minn fond ta' assi jew ta' investiment - fi kliem ieħor, il-firxa li fiha jiċċaqlaq il-prezz. Għal dawk li jinvestu għal perjodu qasir l-instabilità tista' tkunilhom aktar ta' sogru minn dawk li jinvestu għal terminu twil għax - f'suq b'kundizzjonijiet normali - iċ-ċaqliqiet 'il fuq u 'l isfel fil-prezz jibbilanċjaw ta' spiss lil xulxin fuq perjodu twil, mhux qasir.

L-attitudni li tieħu fuq ir-riskju hi parti essenzjali mill-proċess tal-investiment li tkun se tagħmel. Aktar ma tistabbilixxi profil ta' riskju li jkun jixraq għall-investiment tiegħek, aktar ikollok ċans tagħżel investiment xieraq għall-ħtiġijiet u l-għanijiet tiegħek. Kemm jekk tqis ruħek bħala investitur li lest jissogra ħafna, kif ukoll jekk tqisek aktar kawtel jew xi mkien bejniethom, fit-triq tan-nofs, l-aktar ħaġa importanti hili tħossok komdu li l-portfolju tal-investiment tiegħek, b'mod ġenerali, jirrappreżenta kemm jista' jkun il-livell ta' riskju li lest tieħu.

Fil-futur se nitkellmu fuq il-ħames profili ta' riskju li wieħed irid jagħżel minnhom jekk ikun se jinvesti fil-Model Portfolios tal-Mutual Funds tagħna.

Why choose MeDirect?
We are a specialised bank, focused on providing market leading savings products, investment services and wealth management. With low and transparent fees, make the most of your wealth and open an account today.