Support My Efforts By Visiting The Advertisers


This is a personal blog. The opinions expressed here represent my own, not those of my employer and is not intended to malign any religion, ethnic group, club, organization, company, or individual.

The Sky(Market) Is Falling

>> Wednesday, June 5, 2013

In a blink of an eye, it has been 3 months since my last post.

With the recent market sell down, there are many starting to get into panic mode. Hence, I thought it was a good time to revisit the topic of financial risk profiling.

Determining one’s risk profile is an important first step to establishing one’s Investment Policy Statement (IPS), which eventually sets the stage for one’s entire investment philosophy and performance measurement benchmark.

Risk profile can be divided into 2 dimensions, namely the willingness and the ability to take risk.

For willingness to take risk, it will be more of a subjective topic in human behavior. It will need to take into consideration a person’s character, emotions, knowledge and attitude. As we all know, these are very complex topics, as humans are simply not easy to comprehend. On one hand, someone may exhibit risk adversity by hoarding all their money in fixed deposits and at the same time display aggressive risk taking interest like purchasing 4D/TOTO/Big Sweep or gambling at the jackpot/casinos.

Sometimes, it is also a matter of framing. Perhaps one is very conservative about their hard earned savings over the years, having been brought up in a frugal environment and reluctant to take any risk with their funds. However, if maybe they now inherited a huge fortune, they suddenly are willing to invest aggressively with the new found wealth.

Similarly, a successful entrepreneur may seem like a risk taker. They invest aggressively into their small time business when they are in control of the Company. At the same time, they may prefer not to invest their personal wealth, shunning away from other bigger listed Company’s equity.

For ability to take risk, it will be more of a scientific topic. It is determined from the amount of assets, liabilities, income and expenses of the individual. If the assets and income side is greater than the liabilities and expenses, one has a greater ability to take risk.

After assessing the 2 dimensions, the conservative approach will be to take the lower outcome of the 2. If ability is low and willingness is high, risk profile is low and it will be good to educate and moderate one’s views and expectations to recognize the limitations of one’s financial ability. If willingness is low and ability is high, risk profile is low. However, one should consider revisiting on the reasons for the low willingness to see if there are any issues that can be resolved.

In summary, establishing the risk profile is the root of the IPS and as with most investments, they are for a goal in mind, markets are expected to fluctuate. However, that is no reason to start turning chicken little on every down turn. Rather consider it an opportunity to revisit the fundamentals and rebalance if required.


Podoloski advani June 27, 2013 at 3:41 AM  

great article

Ogniwa fotowoltaiczne

Blogger August 11, 2017 at 8:15 PM  

eToro is the ultimate forex broker for novice and pro traders.



The owner of this blog does not share personal information with third-parties nor does the owner store information is collected about your visit for use other than to analyze content performance through the use of cookies, which you can turn off at anytime by modifying your Internet browser’s settings. The owner is not responsible for the republishing of the content found on this blog on other Web sites or media without permission.

Blog Comments

The owner of this blog reserves the right to edit or delete any comments submitted to this blog without notice due to;

1. Comments deemed to be spam or questionable spam
2. Comments including profanity
3. Comments containing language or concepts that could be deemed offensive
4. Comments that attack a person individually

Terms and Conditions

All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

This policy is subject to change at anytime.

About This Blog

To promote the education of individuals for the need to have a healthy lifestyle and wealth management through proper financial planning, particularly in investments.

Top Blogs


Top Sites

  © Blogger templates Sunset by 2008

Back to TOP