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Risk Profiles

Risk Profiles

When considering how to manage risk we often look at the split between income assets and growth assets and within this split the specific asset class allocations. The specific asset class allocations are the portion of a portfolio which is invested into income assets (such as cash, New Zealand and International fixed interest securities) and growth assets (such as New Zealand and Australian equities).

When we invest it is important to consider our goals and our risk profile. We usually work through a risk questionnaire that places us into one of five risk profiles. This risk profiling process is important as it should help match our investment objectives to our risk appetite.

Each of these risk profiles is mapped to an income and growth asset split. For example, we suggest that someone with a Balanced Risk profile have a portfolio that has a split of 40% income assets and 60% growth assets. We call this split of assets the target asset allocation.

Risk profile chart 

Once we have invested our money the value of our actual holdings will change over time as each asset class can and may move at a different rate. These variations can move our portfolios away from our target asset allocation and if left unchecked our portfolio may assume greater or lesser risk than we would like. This in turn may result in our portfolios becoming more volatile, incurring unexpected losses, or underachieving against our investment objectives. We are currently going through a period of strong returns; growth assets (e.g. shares) have achieved high returns relative to income assets. If we model a 3% p.a. return on income assets and a 12% p.a. return on growth assets over a three year period, a Balanced Investor profile will have moved to a 34:66 split between income and growth assets.

It is important that we regularly review and compare our holdings against our target asset allocation, as well as our appetite for risk as our circumstances can change over time. Regular rebalancing keeps our portfolio on an even keel.

Our Private Wealth Research team produce a series of target asset allocations to suit a range of risk profiles. Details of these asset allocations are provided in our News & Views publication which is available in the Client portal area of this website.

There are many more risks to be aware of. For more information on these refer to the Investment Statements for your service.

Talk to your Investment Adviser if you would like to discuss what you currently hold and the best approach for you.   

Disclaimer: This report is a private communication to clients of Craigs Investment Partners Limited (“Craigs Investment Partners”) resident in New Zealand and is not intended for public circulation or publication or for the use of any third party, without the express prior approval of Craigs Investment Partners. This report is not intended for distribution to any person outside New Zealand except in accordance with all the legal requirements of the relevant jurisdiction. While this report is based on information from sources which Craigs Investment Partners considers reliable, its accuracy and completeness cannot be guaranteed. Craigs Investment Partners, its partners, employees and related companies, do not accept liability for the results of any actions taken or not taken upon the basis of information in this report, or for any negligent mis-statements, errors or omissions. Those acting upon information and recommendations do so entirely at their own risk. Craigs Investment Partners did not take into account the investment objectives, financial situation or particular needs of any particular person in the preparation of this report. Nothing in this report constitutes a representation that any investment strategy or recommendation is suitable to your individual circumstances or otherwise constitutes a personal recommendation. Accordingly, before making any investment decision Craigs Investment Partners recommends that you seek professional assistance from an investment adviser. Craigs Investment Partners and/or its partners and employees may, from time to time, have a financial interest in respect of some or all of the matters discussed. The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject, securities and issuers and/or other subject matter as appropriate; and (2) no part of his or her compensation was, is or will be, directly or indirectly related to the specific recommendations or views contained in this research report.

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