Know your Investor Profile
The first step to successful investing has nothing to do with money or investments — it’s about you. What are your goals and what risks are you willing to take to reach them? How long do you plan to invest for, and what is your starting point?
These are just some of the important factors that determine your Investor Profile.
Getting to know yourself
To determine your Investor Profile, most financial institutions will ask you a series of questions, like the following.
What is your current financial situation? Before you can get anywhere, you need to know where you are right now. Where investing is concerned, that means being realistic about how much money you can set aside to invest after paying your regular expenses (such as rent or mortgage, food, clothing and debt repayment).
The best way to determine this is to create a budget. A budget will help you calculate your total income, your total expenses and help you to determine how much you can afford to invest on a regular basis.
What are you investing for? People invest for many different reasons. You may have a short-term goal, like buying new furniture or a car in the next year or so. Or perhaps you’re saving for a down payment on a home you’d like to buy within the next five years. You probably have longer-term goals as well, such as a post-secondary education for your children and a secure retirement for yourself and your spouse.
How long are you investing for? Your investment time frame or time horizon refers to how long you can leave your money to grow before you expect to need it. Based on your goals, that might be anywhere from a few months to 20 or 30 years.
How comfortable are you with risk? Different types of investments have different levels of risk. In general, investments that have greater potential for higher returns come with higher risk. Good investors take steps to balance risk and return within their portfolio or basket of investments.
Very secure investments such as savings accounts or Guaranteed Investment Certificates (GICs) carry very little risk but, in general, they provide the lowest returns.
Investments that focus on growth, such as equities and equity mutual funds, provide relatively higher potential returns, but they require patience since over the short term their values can move up and down. Over the long term, however, these types of investment have traditionally provided the highest return.
Within your investor profile, it’s important to know how much risk you are willing and able to carry. This will help you determine what types of investments are best suited to your investment style and needs.
How much do you know about investing? It’s always a good idea to invest only in things you understand. So your level of investment knowledge will play a role in determining what investments are appropriate for you.
Answering these questions to determine your Investor Profile helps you better understand yourself so that you can be more confident about the decisions you make. It will also help an RBC advisor recommend the right products for you. And since many RBC investment products are designed with specific investor profiles in mind, there might be a ready-made solution you could use.
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Your profile |
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You can find Investor Profile questionnaires online, such as the one available from the Canadian Bankers Association. However, a visit to your nearest RBC Royal Bank branch may give you a much more comprehensive version. You will be able to fill out a detailed questionnaire, and ask an advisor for explanations or guidance as you work through the answers.
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What type of investor are you?
While every investor is unique, most people fall into one of the following six categories:
- Secure investors need to know that their original investments are secure. In return, they’re willing to accept lower rates of return.
- Income investors rely on their investments to give them a steady stream of cash flow on a regular basis and to maintain a steady value.
- Conservative investors are willing to take on a little more risk in order to earn slightly higher potential returns.
- Balanced investors are comfortable with risk but want to offset it by also holding a substantial portion of secure investments.
- Growth investors don’t need regular income from their investments and are comfortable with riskier investments. They approach their investing with patience and are willing to invest for the long term to make the most of the stock markets’ potential over longer periods.
- Aggressive growth investors want to see their money grow as much as possible over a long-term period. They have a high risk tolerance and understand that their investments may fluctuate significantly in value for the time that they hold them.
Your Investor Profile changes as you do
Compiling an Investor Profile questionnaire is a good first step to investing. Over time, however, your situation will change. Your level of investment knowledge will increase, for example. You may achieve some of your goals and are likely to develop new ones.
That’s why it’s a good idea to go back and update your profile on a regular basis, perhaps every year or every two years. This will help ensure that you continue to choose investments that are right for you.
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Find an RBC Royal Bank branch near you. |
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Read the brochure Investing Your Dollars produced by the Canadian Bankers Association. |
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