Get ready for risk
Defensive, aggressive – what’s your risk profile?
Creating a portfolio is all about managing risk and reward – and finding the right balance between the two is one of the most important steps you’ll take on your investing journey.
Remember, every investment carries some risk, whether it’s a volatile stock or a “safe haven” asset like gold. So, creating a portfolio isn’t about avoiding risk entirely – you can’t – but you can understand and manage the risks and build a portfolio that matches your taste for risk.
Your risk appetite says a lot about what type of investor you are. If market fluctuations make you queasy and you’re not comfortable with the possibility of losing your capital, you’re probably a defensive investor. If this sounds like you, investing in bonds should be on the menu, with smaller portions of stocks and non-traditional investments.
More risk, more returns
On the other hand, if you’re keen to take a big bite out of the market and can stomach some ups and downs along the way, you’re the aggressive investor type. You’d be at home having more stocks in your portfolio, even dipping into foreign equities, oil or other alternative investments.
Why put more risk on your plate? Simple – for more reward. Over time, an aggressive portfolio can bring higher returns. Just be sure you’ve got the appetite for it.
Twenty pounds of headlines
Creating a portfolio doesn’t happen in a vacuum – risk is always present. Anything from global headlines to breaking business news can move financial markets with dizzying speed and have a knock-on effect on your investments.
If you’re a defensive investor, you’ll be best prepared for these risks, with assets like government bonds, gold or foreign currencies far from your main market creating a “safe space” for your money.
Profiles in courage
Aggressive investors always face risk, whether it’s from a world event headline or something as simple as an analyst’s downgrade of your favourite stock.
But while you’re intrepidly chasing opportunities, don’t forget to take a page from the defensive investor’s playbook and diversify your portfolio with some safe haven assets to hedge your riskier positions.
Whatever type of investor you are, learning to manage risk is key to creating your portfolio – whether you want it to preserve your capital, maximise your returns or anything in between.
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