People face many different risks throughout their lives. In one way or another, risk is present in every aspect of life. As long as you have to commit either yourself or your money to something, you are accepting some degree of risk.
One form of risk that is particularly relevant today is inflation – a sustained rise in overall price levels which declines your real purchasing power. The value of a dollar today would be worth less in the future. A S$2 McChicken burger that you could purchase in 2000 would cost $3.95 today. The same applies to our medical bills, cars, homes and more.

Imagine if you were given S$100 today, and you had the option to spend it today or in 20 years on a particular set of goods or services. You would, more often than not, get more value if you spent that money today. This means that by stashing and hoarding money aside in a low-interest environment or traditionally “safe” asset class, you risk losing a portion of the value of your initial investment to inflation. Growing your net worth through investing will then become a necessity rather than a nice-to-have.

When it comes to investing, I advocate learning how to take calculated risks – in a world that is changing really quickly, not understanding risk or acting without conviction can be quite detrimental to your financial well-being. At the same time, I understand that taking financial risks may be daunting for some. Here are some common concerns I’ve observed, and how an adviser can help address those doubts.

It is commonly misunderstood that investments come with many risks. Some may compare it to gambling your hard-earned money away, and others may even see it as a sure way to lose money. Investing does require knowledge and experience, or else you would be speculating.

How a financial consultant can help: At IPP, we will curate your portfolio based on your risk tolerance, so that you can invest at a risk level you are comfortable with.
For example, risk can be managed by adopting a strategy like dollar-cost-averaging through a regular savings plan via a fund. This is because investing in a fund automatically diversifies your investment holdings because each fund could be invested on different companies, reducing your risk. This method is ideal for investors who have limited capital as it enables them to invest in the shares of popular companies they were initially unable to. For example, individual share prices for companies like Tesla, Amazon, Apple or Alibaba are expensive; shares are also riskier as they depend on the individual company’s performance.

All investments carry an element of risk, and the key to success is in understanding and managing them. It is important to understand your risk tolerance level and stick with a comfortable level – think of it as being able to still sleep well at night while your money works for you.

How a financial consultant can help: A financial consultant can structure your portfolio based on your needs and risk appetite. One way is by helping you create a risk profile to assess your tolerance for risk. At IPP, your adviser will guide you through a risk tolerance questionnaire to find out the level of risk you are comfortable with.

This is an important stage of planning before you go into investing – you would not want to be in a situation where you are a conservative investor investing in a highly aggressive fund with frequent fluctuations. Or, if you are an aggressive investor, you may feel dissatisfied in a low-returns environment because your expectations may not be met.

You have probably heard of the old adage “high risk, high rewards”. It is not necessarily true all the time. There are methods and strategies you can employ to lower your risks and still enjoy attractive annualized returns.

How a financial consultant can help: An adviser can build you a well-diversified portfolio that balances risk to optimise potential returns. Diversification is a risk-management technique used in investments in a singular portfolio to lower risks. For example, a positive return on some investments can help to offset the poor performance of other investments. To match your unique risk profile, your adviser may recommend solutions such as IPP’s Eagle Eye. Your adviser can also help optimise investment portfolios through periodic rebalancing and strategic asset allocation.

Everyone has their own investing styles and preferences. With shared finances, compromises will have to be made to ensure that both sides stay comfortable.

How a financial consultant can help: The consultant will work hand in hand with you both to find the ‘sweet spot’ both parties are comfortable with.

For example, assuming you and your partner have a moderate risk profile, you could start off with a portfolio which could have a weight allocation of 40% equity and 60% fixed income. Subsequently, depending on any changes to you and your partner’s risk profiles, you may want to build individual portfolios with either high equity or fixed income weight allocations. This allows both parties to satisfy their risk appetite. Otherwise, if you are comfortable being viewed as separate entities and would like to embark on different risk level, an adviser can also work with you on that.

TEAM EAGLE ADVISORY

Clement Ong