3 Basic (risk) Investor Profiles. What does it have to do with cryptos?

3 Basic (risk) Investor Profiles. What does it have to do with cryptos?

Spread the love

An investor´s profile is determined by an individual´s preference in investment decisions, shaped by the individual’s capacity to deal with risk in order to obtain a higher return. There are three basic investor profiles: the conservative, the moderate, and the aggressive.

The definition of the profiles is associated with the “Tripod of Investments” that are essential factors used in the evaluation of an investment which is liquidity, security, and profitability.

Liquidity is related to the availability of money, or to the “rescue” of the investor´s money; Security is related to risks; And Profitability is related to the possible return, the gains.

These factors are used by investors during their decision-making process, and a significant detail is that these factors may not be present in an investment in a remarkable way, which leads the investor to have to give up some factor.

Your preferences, your choices and the factors you choose to prioritize will define your investor´s profile.

*When it is time to invest, what are you willing to give up? * Which factor do you prioritize most? *Do you have emotional tolerance for losses? *Or do you get desperate for losing any amount? *Would you like to have your money available for withdrawal at any time? *Or do you feel comfortable waiting 30+ days? What is your tolerance for risks? *Are you interested in investing short term or long term?

“There is not one investment better than the other. There are different people who need different investments according to their investor profile and their goals … “– Leandro Ávila financial educator.

The Three Basic Investor Profiles

1. The Conservative

The conservative investor prioritizes security and liquidity much more than profitability. Thus, the conservative has zero tolerance for losses and risks which naturally leads him or her to give up on a larger return that comes with higher-risk investments. This profile likes to have its investments deposited in applications without much volatility so that he or she can leave them there and rest. This does not mean that he or she does not monitor them, but rather that there is no reason for very strong emotions like the stock market for example. In the case of riskier applications, the conservative profile appreciates rescue power, or immediate liquidity, and would not be able to tolerate 15 or 30 days waiting while watching their precious investments declining. This profile is in search of, or comfortable with, short to medium term investments ranging from 0- 5 years.

Usually, new investors who are just getting started will easily fit this profile and overtime after acquiring more experience their profile may change.

  • Investment Portfolio: At least 80% applied to Fixed Income and little or nothing in Variable Income.

2. The Moderate

The moderate investor has one foot in the conservative and another in the aggressive profile, making it safe to say that this is a more balanced profile. This profile has greater tolerance for risks than the conservative but not as much as the aggressive; it is willing to give up a little more on liquidity and security to obtain the desired returns. This profile is in search of, or comfortable with, medium to long term investments from 5 to 10 years.

  • Investment Portfolio: 60–65% applied to Fixed Income and the rest in Variable Income and Funds

Ps: It would be natural to believe this is the best profile, but truth be told, the best profile for you is your own. There is not one profile better than the other. Keep that in mind 😉

3. The Aggressive

The aggressive investor prioritizes profitability above all factors and has great tolerance for risks. This is usually a savvy investor with more money, and so he or she is willing to give up on immediate liquidity tending to be more flexible with greater tolerance for losses because he or she understands that higher profits will come in the long run. This profile is in search of, or comfortable with, long term investments of 10+ years.

  • Investment Portfolio: More than 50% applied to Variable Income.

Why is it so important to know your investor profile?

Because without knowing your profile it is practically impossible to invest correctly.

The investment scenario is the same for all, there are no better or worse applications, but rather the right combination of the appropriate application, to the appropriate profile.

For this reason this investor profile is also known as Suitability which means “the quality of being right or appropriate for a particular person, purpose or situation.”

Investing without knowing your profile can lead you to lose a lot of money, and this is especially worrisome if you do not have emotional tolerance for risks and losses.

The wrong investment can lead you to unnecessary emotional and financial distress and when a simple profile test can lead you to have a successful journey in your investments.

Also, this is not only a personal matter, but rather legal, while investors may not be fully aware of what risks truly entails — brokers may feel tempted to lead or advise investors towards riskier investments, which is why no one is allowed to invest without an investor´s profile, every brokerage firm must offer a suitability test prior to investors being allowed to participate in the platform. FINRA in the U.S.A. for example reinforces these rules.

Final Thought

Interestingly enough, cryptocurrency traders and investors have jumped this step, there is a possibility many do not even know anything about it because it is not mandatory in this market, which may have led to a large number of people who lost astonishing amounts of money and even became frustrated with the technology for not investing appropriately and accordingly to their risk tolerance.

To be an early adopter of this technology, it would only be ethical to know your profile, it would help you stir your emotions, and expectations into the right direction, which could lead you to gain more and lose less.

It could also root you in the right reasons for the existence of this technology, and better prepare you for the losses or even keep you from investing so early in case you learn you cannot handle risks at all.

“I bought my first BTC at 30$ and watched it tumble to 2$ in the next year. If you can’t stomach a 90% drop in crypto, don’t adopt early.” — Charlie Lee creator of Litecoin

Being disappointed with the industry will not add on to the growth of the technology, only your proper investments can do that.

Even as a cryptocurrency company, we do not want you to invest just to invest, we want you to be committed to the technology, the growth it represents for humanity.

“By virtue of exchange, one man’s prosperity is beneficial to all others.” — Frédéric Bastiat

Whenever you invest in any crypto, you are investing in the actual technology, as of now this is beyond a profit, we all want our cryptos to appreciate, but it can only perform as expected if we respect the organic process of growth.

Know that, commit to that, and invest suitably!

Note: Keep in mind that the three profiles mentioned here are not absolute, these are just the three basics; it is possible to fit between one and the other as a moderately-aggressive or moderately-conservative for example. But do not be tempted to judge your profile by yourself, search for a risk investor profile test on google, there are plenty available for free!

We wish you a suitable crypto journey ❤

The Winco Team


Disclaimer: Our team works hard to bring you the best content in the cryptocurrency market, but it is only our point of view and not legal advice, and may be divergent from other opinions, so please do not make any decisions without concluding studies of your own to understand the profit possibilities and uncertainties involved at your own risk.

Leave a Comment