Finding & Understanding Your Risk Profile

Creating an investment portfolio which offers good returns is something every investor is aiming for – but investments don’t always meet expectations. Every investment has an element of risk attached to it. No analysis of the potential returns or performance of any investment is worthwhile without first considering the risk involved.

At its simplest form, risk in investment is the possibility that any outlay may not deliver the expected outcomes. If things really don’t go the way you planned, you may lose some, or even all of the funds you invest.

Deciding on the level of risk you’re willing to accept when making an investment – often referred to as a ‘risk profile’ – should be a key part of every investor’s strategy.


Finding your risk profile:

Your risk profile is a combination of three factors: the risk required to achieve the return on investment you desire; your capacity to take that risk (namely, the losses that you can afford); and your tolerance to take the required risk.

At one extreme, some investors are comfortable with investments where risk is high. They’re prepared to lose the money they have invested if things don’t go to plan, with the trade-off being a greater opportunity to earn higher returns than lower-risk investments.

For others, the idea of seeing hard-earned money retreat before a potential gain isn’t an acceptable risk. For them, losing savings is a risk they’re not willing to take.

The age, stage of life and goals of investors are important elements in determining an investor’s risk profile says Ray Gatfield, Corporate Investor Manager at Classic Capital.

“When you’re younger you can actually afford to lose some money because you have longer to make it back, so you can take a higher risk level. But if you’re at the back end of your career you probably want to have a more stable portfolio which gives you that stability and certainty of income.”

For most investors, finding a balance between investments that generate good returns and provide stability is the sweet spot to aim for. This involves weighing up the risk and reward associated with a potential investment before committing.

Ray says it’s important to consider a couple of questions before investing in any opportunity.

“Firstly, the personality and experience of the people involved. Who are you giving your money to, what’s their track record, how long have they been doing what they do, and have they been successful in doing whatever they’re doing that you’re considering putting your money into?

“Secondly, security is important. If things do go wrong, how do you actually get your money back?”

In New Zealand, property has been a go-to investment option for generations. While the share market can seem volatile to many, the property market is a comparatively dependable investment.

For investors who do their research and seek proper professional advice, property investment provides a secure, relatively fixed return. But getting into the rental market isn’t the only option when it comes to property investment.


‘Match’ funding to reduce risk:

 For investors who are considering becoming landlords (or already are, or have been), managed funds offer a dependable alternative, without the time commitment required to look after a rental property.

Classic Capital – a property fund management business that is part of the Classic Group – is seeking investment through its Land & Build Fund, which supports the development of housing projects around New Zealand.

Raymond Gatfield, Classic Capital’s Corporate Investor Manager, says the Land & Build Fund uses ‘match’ funding (in other words, matching the term of an investment with the actual use of the funds) to provide added security to investors.

“Match funding is a sound credit risk procedure which ensures there’s liquidity in the market, and liquidity in the fund to ensure investors’ funds are returned. That’s key for Classic Capital.”

“It gives investors added certainty about their ability to get their capital back at the end of the term they have invested for.”

Backed by the Classic Group, a diverse group of businesses that began more than 25 years ago with the formation of Classic Builders, the Land & Build Fund supports residential housing projects to be delivered at pace around New Zealand.

=The Classic Group has a steady pipeline of building work for the next 12 months, with projects in Northland, Auckland, Waikato, Tauranga, Wellington, Christchurch and Queenstown and more opportunities on the horizon.

“Thereafter we’ll either look for investment to roll over for another 12 months, or investors can choose to provide a 90-day notice period for us to give their capital funds back,” says Ray.

“At the end of the day, when you invest, you want to get a nice interest rate, but you also want to know that when the time’s right, you’re going to get those funds back into your back pocket. This is the security we provide around investments in Classic Capital, in all of our funds.”

If you would to know more about our investment opportunities. Get in touch today.

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