Why do I need to choose my risk tolerance and how is it understood?
Updated
Why do I need to choose my risk tolerance? There is no one-size-fits-all in investing, and each of us deserves a solution that works for us. We all have different risk appetites or risk tolerance. If you invest in a way that is not compatible with the amount of volatility or short-term loss you are comfortable taking, you are setting up for failure when the markets inevitably move against you as you may make investment decisions that go against your long-term financial well-being.
Depending on your risk tolerance, we will recommend you a customized portfolio that will allow you to stick to your investment plan through market cycles, whether they are up or down, thus giving you the highest chance of reaching your investment goals.
How is my risk tolerance understood? We analysed the historical data of our portfolios for the past 15 years, including the 2008 Global Financial Crisis, to determine the worst drawdown in any rolling 12 month period. We will only advise you to invest in a portfolio that has historically had a 12-month percentage loss of up to what you are able to tolerate for your investment.
We believe that this is a highly conservative approach because if you can hold your portfolio over a longer period of time, the risk of a large drawdown declines substantially.