Risk Profile Questionnaire

Understanding Risk Profiling
The Risk Profile Questionnaire is a tool that can assist you and the adviser determine your tolerance to risk and how that relates to your particular investment strategy and the type of investment assets you acquire for your investment portfolio. The information in this section is designed to provide you with an understanding of the key elements considered to develop an investment strategy that is most likely to achieve your particular financial goals and objectives and commensurate with your tolerance to investment risk.
Risks associated with Investing
There are various risks associated with all financial investments. These include: inflation, volatility and market risk, specific risk and legislative risk.
Inflation Risk
The real purchasing of your money may not keep pace with inflation. Inflation is an important consideration for all investors. If the after-tax return of your investment is less than the rate of inflation, then the buying power of your money will decline.
Volatility and Market Risk
Movements in the market mean that the value of your investment can go down as well as up, sometimes suddenly (volatility). Different types of investments experience different levels of volatility. Volatility becomes a problem if you do not have the timeframe to withstand the downturn in the value of your investments, whilst waiting for the value of the investment to increase.
Specific Risk
Specific risk refers to those risks related to a specific company share. For example, a fall in the profit performance of a company may impact adversely on its share price. This in turn, is likely to affect the value of its shares.
Legislative Risk
Your investment strategy could be affected by changes in the current laws and regulations, particularly as they may relate to Superannuation, taxation of investment income and capital growth, and employment income.
Relationship Between Risk and Return
Risk and return are positively correlated. In real terms this means, the higher the risk associated with an investment, the higher the expected return and vice versa. This relationship is called the ‘Risk vs Return Ratio’ and is a factor that is taken into consideration in defining your tolerance to investment risk. Investments such as shares may offer higher returns over the longer term, but there is a greater inherent risk. In contrast, cash and fixed interest investments are considered to be less risky, but offer lower returns.

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