Katherine Al Haddad

By Katherine Al Haddad

October 5, 2013

Financial Security

Five Steps to Determine Your Investor Profile

Article revised on 26 October 2018

Most Canadians are investing in some form of savings. They are actively looking to invest in retirement savings. If you are still actively looking, you first need to determine your investor profile. You’re probably asking yourself what’s an investor profile? An investor profile defines an individual’s preferences in investment decisions1.

In other words, what’s important when investing is not whether an investment is good, but whether it meets your expectations based on your investor profile! To understand this concept better, here are 5 major elements to consider when evaluating your investor profile. 

1. Risk tolerance

The most important element is your personal tolerance for risk. It’s a reflection of you, so it’s important you respect it. Non-guaranteed or so-called “high-risk” investments are not for everyone. To identify your degree of risk tolerance, ask yourself the following questions: “How would I feel if the value of my investment portfolio were to fall? How confident am I that my investments would eventually recover their value?”

2. Investment horizon

The second element to consider is your investment horizon. In the world of securities, it is generally agreed that non-guaranteed investments (mutual funds, stocks, bonds, etc.) are designed to be held on a long-term basis. The reason for this is simple: if they decline in value, you need to give the financial markets enough time to recover. If your investment horizon is under four years, you should purchase guaranteed investments (GICs, savings bonds, treasury bills).

3. Age

Your age is the third factor to consider, as this is tied to your investment horizon: the older you get, the less time you have to “wait” for the markets to recover after a sharp decline.

4. Investment objectives

Your investment goal is the fourth element to consider. People make investments for five major reasons:

1. Security: You wish to preserve your capital.
2. Income: You wish to earn an income on your investment or withdraw lump sums from time to time.
3. Balance: You want an investment that offers a balance of income and growth.
4. Growth: You wish to grow your capital.
5. Speculation: You wish to use your investment to speculate.

5. Financial situation

Lastly, you need to take your financial situation into account. Do you have any debts? Have you maxed out your RRSPs? Do you have any non-registered investments (not RRSPs)? When choosing investment vehicles, you should definitely take these questions into account, as some investments have more advantages than others, particularly from a tax perspective.

Note: This article is intended for information purposes only and should not be construed as legal, financial, tax or other advice. The circumstances or elements may vary depending on your individual situation. We encourage you to consult a professional before taking action. La Capitale shall not be held liable for any consequences arising from any decision taken based on the content presented in this article.

1 – Investor profile – Wikipedia

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