How to identify your risk profile to start investing?

According to the Investor Mood Index study prepared by tyba, BCP’s investment platform, 24% of Peruvians consider it likely or very likely invest in the next 6 months. Of those, 19% would allocate their money to investments in Actions, bag Y mutual funds.

Therefore, it is important to bear in mind that if you are a potential investor you must know and define your risk profile, which depends on the degree of risk tolerance you have. This is an essential element when starting an investment.

In that sense, from tyba two questions are shared that you must ask yourself to define it:

– What plan do I want to fulfill with my investment and in how much time?: the beginning of the year is a propitious time to set goals. You must be clear about what you want to achieve with your investment, for example, buying a car, a house or setting up a business.

If you are clear about your plan, it is much easier to know how much you need and how long you will have to maintain your investment to generate enough returns to fulfill it. Investing with a 1-year goal is not the same as investing with a 25-year goal in mind. The long-term goal may be more exposed to short-term risks, but will have the ability to benefit from changes in market trends.

– How much tolerance do I have for risk? Your purpose as an investor should be to maximize return according to the level of risk you can assume. The tolerance analysis is essential to know the type of investment and the most suitable portfolios for you, which include: liquidity, fixed income and variable income. Therefore, it is important that you know if you are able to remain calm in an uncertain situation. The answer to this question will tell you if you are risk averse, or if you don’t, you like to take it and you could invest in portfolios such as equities.

Once you have answered the questions, you will know what level of risk you are inclined towards and the profile you have:

• Conservative risk profile: you prefer it safe and are afraid of the risks associated with investments. You would be a cautious investor with your capital and you would be calm with low returns. This type of profile usually invests in liquid assets and fixed income.
• Moderate risk profile: your tolerance for financial volatility is medium. You want a reasonable return on investment and have a cautious attitude that seeks to ensure moderate capital growth.
• Aggressive risk profile: you are not afraid of the volatility of the markets and you assume the devaluations that could occur, because you want to maximize the return on your investment and receive higher returns. This type of profile usually has equity assets in its investment portfolio.