Do not invest in mutual funds before doing this
Risk profiling is a mandatory step that should be completed before investing in goals
Risk profiling is a mandatory step that should be completed before investing in goals
Disclaimer: The asset allocation and risk profile provided is for educational purpose only. Please consult a SEBI registered Fee-only-advisor before making any investments.
A portfolio created for a goal has one purpose: to meet the goal. Therefore, we need to balance risky assets that generally appreciate fast (like equity) and slow-growing assets that provide stability (like debt). The tool that is used to determine this mix of investments is risk profiling. Risk profiling, if not done, leads to a high chance of missing the goal. Being invested in the wrong asset class in the wrong proportion (either equity or debt) can lead to either high risk or poor returns or worse both.
The basic premise of asset allocation is a balance of the investorâs goal priority (needs vs wants) and the time horizon of the goal like this:
The split is determined by the risk profile of the investor.
As discussed in our goal-based investing post, there are three aspects to risk related to a goal: the necessity of taking risk, ability (can take risk) and willingness (want to take risk).
Note: when weighing ability vs. willingness, the more conservative of the two needs to be chosen since that is most suited to the clientâs unique situation.
Both willingness and ability can be ascertained via questionnaire and discussion and formulation of asset allocation requires both to be in sync and can be done post a discussion with a competent advisor. By merging the two traits, overall risk classification (per goal based on the need to take risk) can be made using a simple 3-point scale: high, medium and low.
Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.Please use this form for a single/particular goal like buying a house, a vacation, a childâs college education or retirement etc.
This form is not for your âoverallâ asset allocation. There are some myths/thumb rules regarding asset allocation like 100-age% or 60:40 equity to debt that completely ignores the individualâs risk profile and details of a goal.
The only thing asset allocation depends on are
and this questionnaire covers all of that.
There are two sections:
Please enter your
Your name and email address will not be shared with any third party.
This is a set of 12 questions using a rating (Likert) scale (strongly disagree, disagree, neutral, agree, strongly agree) to understand how the investorâs mind works and the behavioural aspects toward investments
You will get an email with the following information:
for the chosen goal.
Things to keep in mind:
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This post titled Do not invest in mutual funds before doing this first appeared on 20 Apr 2021 at https://arthgyaan.com