All financial investments are a careful balance of risk and reward, and an investment profile should, first and foremost, be defined by where the investor draws their line.
Your investment profile is determined by the following six areas:
- Your goal
- Your risk profile
- Your investing time horizon
- Your investing experience
- Your need for income
- How much high interest debt you have
Your responses to each of these areas will help determine what type of investor you are, and first and foremost, whether investing is appropriate for you right now.
If we think investing is right, we’ll recommend a strategy that we believe is suited to helping you reach your goals.
Why is my investment profile important?
The six areas that form your investment profile help Stockspot to assess the level of risk you should be taking in order to give you the best chance of achieving your goals in your desired time horizon.
As your financial adviser, Stockspot will rely on your investment profile to determine which one of our portfolios suits you best based on how much risk you should be taking.
We manage risk in your portfolio through asset allocation, which is informed by your risk profile and risk appetite.
Asset allocation is how much of your money is in growth investments (shares) and how much is in defensive investments (bonds and gold).
An investment strategy based around growth investments leads to higher risk (or fluctuations) but has more growth potential, while a strategy with more defensive investments offers more short term stability but reduces long term growth.
If you have a long-term investing goal, you may be able to take more risk as you have more time in the market to withstand the ups and downs of the share market.
In that situation, Stockspot is likely to recommend one of our growth portfolios with a higher allocation to growth investments.
However, money invested for shorter-term goals should be exposed to less risk, so that you have enough time to recover from a potential market downturn. In this example, we may recommend a balanced or conservative portfolio.
A combination of all your responses will determine how much risk is appropriate for your circumstances and therefore which portfolio we recommend to you.
The Stockspot portfolios
| Portfolios | Growth (%) | Defensive (%) |
| Amethyst – Conservative | 40 | 60 |
| Sapphire – Moderately Conservative | 50 | 50 |
| Turquoise – Balanced | 60 | 40 |
| Emerald – Growth | 70 | 30 |
| Topaz – High Growth | 78 | 22 |
How do you work out my investing goal?
Your investing goal could be something quite specific, like saving for a house deposit or your kids’ education, or it could be more abstract, like building wealth for the future.
Once you start investing, you can update your goal at any time using the goal tracker tool available inside your dashboard.
How do you work out my risk profile?
We ask you scenario based questions to help us understand your risk capacity and to what extent you can withstand volatility (ups and downs) in your portfolio.
Some investors can stomach more volatility in their portfolio for the benefit of higher potential returns. Other investors prefer less volatility even if it means sacrificing some returns along the way.
Why is your investment time horizon important?
Your investment time horizon is important for determining how much risk you should be taking in your portfolio.The shorter your investment time horizon, the less risk you should take.
Stockspot clients with a time horizon of three to four years are best suited to the Amethyst or Sapphire portfolios, because if there is a larger market fall, you have less time in the market to recover from those temporary dips.
If you’re investing for the longer term, for example five or more years, you have more time on your side to recover from any temporary dips in your portfolio, so you can be better suited to a balanced, growth or high growth portfolio, such as Turquoise, Emerald, or Topaz.
If you have a time horizon of less than three years, investing might not be right for you and your money is better placed in a high interest savings account or similar.
Why does it matter if I have high interest debt?
If you indicate you are paying down high interest debt, we’ll recommend you pay off the debt before you start investing.
High interest debt, like credit cards, can charge as much as 20%. As these higher interest rates are likely to be greater than the expected return in your first few years of investing, pay them off first.
When should I change portfolios?
If there is a chance in your financial circumstances, goals, investment time horizon or comfort with risk, you should review your investment profile to make sure it is still appropriate for you.
Similarly, as you move through different stages of life and your desire for capital preservation versus capital growth changes, it is also a good time to review your investment profile.
When shouldn’t I change portfolios?
When markets rise or fall, it can be tempting to chase the best performing portfolio, but changing your investment plan for performance reasons alone can end up throwing you off track from reaching your goals.
When you change your portfolio, it may lead to a rebalancing. This can lock in capital gains (or losses) and see you move to a portfolio that is less suited to your risk profile and time horizon.
If nothing has changed, our best best advice is to stick with your current portfolio and let Stockspot’s optimised rebalancing do the work, keeping your portfolio’s risk setting at the right level.
Stockspot’s annual review process
Every July, we ask clients to review their investment profile so that we can capture any changes and check that your portfolio continues to be the best option for you.
Even if you think nothing has changed, the annual review process is a great opportunity to check in on how you’re tracking with your investment strategy and question if anything has (or could) change in the foreseeable future.
Could you invest for longer? Could you set up another portfolio for a different goal? Could you increase your top-ups?
Our team of advisers are always on hand to help you work that out, so don’t hesitate to get in touch.
We discussed risk profiles and how they inform investment strategies extensively in an interview with Money magazine, so make sure to check that out for more details.
Get started on your journey with Stockspot by taking our investment profile quiz!
