How Much Risk Can You Take?

When going into investing, you want to know how much risk you can handle. This helps you decide on which investments are the right ones for you.

Thus, knowing how much risk you can handle when investing is called your risk appetite. 

So let’s dive into each aspect of your risk appetite and how each helps you decide how much risk you can take.

Your current status can help you determine your risk appetite

#1 – Your age

Who says age is just a number? The younger you are, the more risks you can take. Compared to someone in their 50s, your portfolio has time to recover from any short-term losses. Portfolios with higher risks will also yield higher returns. Since you have more time to weather market volatility, you have an advantage.

#2 – Your job

Your risk appetite also relies on what your job is. Is your income unsteady or involves high risk? 

Without a fixed income, you need to consider taking a lower level of risk for your portfolios. The best way forward in those circumstances is to set aside a portion of your savings to be invested in more conservative investments. 

Know your financial goals

When it comes to planning your financial goals, the first step is to understand your cash flow needs. Do you need your money anytime between a month – a year (short term) or can you wait beyond a year (long term)? 

Next, assign different functions to these time frames. This will help you identify the best investment tools to meet your goals. Let’s look into how we can do this effectively.

Short term goals

A simple way to determine if your goal is short-term is to see how soon you need to access your cash. This includes daily use, emergency expenses, and setting up a sinking fund (e.g. gadgets, travel etc).

If you are not comfortable taking risks, you can select low-risk investments such as Versa Cash. Not only does Versa offer high liquidity, it yields higher returns than typical Fixed Deposits. 

Long term goals

Long-term goals usually look at the bigger picture. In the long term, people usually plan for their retirement or children’s education. More time gives more flexibility. You can invest in growth assets – which tend to fluctuate more but produce higher returns over time.

Pinpoint your risk tolerance to gauge your risk appetite

The final aspect of your risk appetite is your risk tolerance. Ask yourself, how much losses can you accept?

Will you be comfortable with a 30% loss and holding that until it recovers? Or are you emotionally tied to your investments? The last thing you want is for your investments to affect your emotional and mental well-being.

Investing may involve risk; but at the end of the day, it is a tool to meet your goals and offer peace of mind for your future. 

Understanding your risk appetite helps you choose the right investment portfolio

Once you understand your risk appetite, the next step is to find the right investment. It may be overwhelming at first, which is why you can consider getting an already well-established portfolio managed by fund managers. This is where Versa comes in. Before choosing your portfolio, we help you understand your risk appetite by having you answer a series of specially curated questions in our Suitability Assessment Test (SAT).