What's Your Investor Profile?
Determining your investor profile is one of the most important steps of the investment process, since it will allow you to choose holdings and strategies that fit your situation. Most financial institutions use a questionnaire.
Your financial planner will consider the following factors to determine your investor profile in order to better advise you and help you make the right decisions:
- Your financial objectives
- Your investment horizon
- Your risk tolerance
- Your knowledge of investment products
Your investor profile will be used to...
- Identify the best investments for your situation
- Develop strategies to meet your various financial security needs (e.g., setting up an emergency fund, saving for a child's education, purchasing a cottage, saving for retirement)
- Judge how comfortable you are with the proposed strategy
- Optimize your portfolio's rate of return based on the degree of risk you're willing to accept
- Apply the time factor to the best advantage to increase your capital
- Provide essential information for diversifying your portfolio
Are You Conservative, Moderate, or Aggressive?
Financial institutions generally use 5 to 7 different profiles, ranging from "conservative" to "aggressive." The names and characteristics may vary slightly from one institution to the next.
Liquidity and Income Portfolio
This type of portfolio is for investors who want a high, stable, and regular income essentially from interest. Taxation is not a decisive factor despite the portfolio's highly taxable content.
Income and Moderate Growth Portfolio
The security, regularity, and stability of interest income remain important. However, a longer investment horizon and greater risk tolerance mean the investor can seek higher growth in a portion of the portfolio.
Income and Aggressive Growth Portfolio
With this type of portfolio, the investor is seeking good growth potential, but wants to maintain a certain control over fluctuations. The investor accepts some short term volatility in return for higher yield potential. Since the investor has enough savings to handle whatever may come, liquidity is kept to a minimum.
Aggressive Growth Portfolio
With a long term investment horizon, this investor's priority is capital growth. High risk tolerance and sufficient savings to absorb any potential downturn mean liquidity is kept at a minimum.
Keep an Eye on Your Profile!
- Your profile should be reviewed annually and only changed in extreme cases (separation, divorce, death, job loss) or if, for instance, you change the starting date of your retirement.
- It's crucial to answer the questionnaire as honestly as possible, since your answers have a direct impact on your action plan and how it's put into place.
- Ask your financial planner to explain the various aspects of your investor profile. Don't let yourself be influenced by everything you hear. If you have doubts about an investment or strategy, talk it over with your financial planner.
- Be realistic about your financial needs.
- Don't put all your eggs in one basket. According to some investment specialists, 90% of your portfolio's volatility depends on how you diversify your investments.
- Beware of any strategy that sounds too good to be true. If you need to, get a second opinion!
- Be patient and perseverant.
After subtracting the inflation rate (currently at approximately 2%) and your taking your investor profile into account, you should reasonably expect a 2% to 4% return, depending on the type of investments in your portfolio.