As part of the investment strategy the investment risk needs to be considered, but also risk relates to the members – what is THEIR risk profile (tolerance/general group they fall with)? All investments are a trade off of risk and return, so risk profiling may help measure a person’s willingness to take more or less risk. Often trustees believe they know how much risk they want to take and invest narrowly in one major class eg property or shares (or worst with many SMSF – cash and term deposits/fixed interest).
Considering the risk tolerance of members can be done with better than guess work. Are they like a Volvo driver (safe and conservative), or Rally Car Driver (eager for speed and adventure)?
A good free risk-profile tool can be downloaded HERE.
They suggest 6 risk profiles, similar to generally agreed groupings.
From there, trustees can invest more academically to align with member profiles.
The amounts above are %, and each column/profile totals to 100%, that is, all the monies and how much in each asset class.
What mix do you consider fits your member profiles? Or what is your preferred spread/mix?
Leave a comment and start the conversation!