Investment strategy essentials: know your investor profile

James Rodriguez James Rodriguez  updated on 2022-06-13

Knowing your investor profile is essential before you start investing. Fortunately, it’s easy to figure out by asking yourself a few simple questions. Once you break down your risk tolerance and goals, you can hone in on the best investments for you.

This guide will help you to understand what kind of investor you are and what types of investments best fit your financial goals. 

Investor profile: essentials

  • There are three main investor profiles: conservative, moderate and aggressive
  • Your investor profile is determined by your financial objectives, investment horizon and risk tolerance.
  • The construction of your investment portfolio will depend on your investor profile.
  • Brokers, investment advisors and robo-advisors can help you define your investor profile and then start investing

What is an investor profile?

An investor profile defines the goals, investment horizon and risk tolerance level of an investor. It is therefore essential for the proper management of an investment portfolio.

By precisely defining your investor profile, you will be able to determine your strategy as well as the allocation of assets that will make up your portfolio according to their risk/return ratio.

Today, online brokers, investment advisors and robo-advisors can define your investor profile to guide you towards investments adapted to your needs and objectives.

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But as we'll see below, by asking yourself a few simple questions, you can define your profile to determine the best investment strategy.

How to define your investor profile?

Understanding your investor profile is easier than you think. Start by asking yourself these questions:

  • How old are you? Younger investors can take more risks, while older investors are often more cautious with their investments as they approach retirement
  • What is your personal and financial situation? An investor with children will also be more cautious than an investor without. Similarly, if you have a large net worth, you can afford to take more risks than someone who cannot afford to lose on an investment.
  • What are your investment goals? Depending on whether you want to generate additional income, build long-term capital, finance a future project or prepare for retirement, investment solutions vary.
  • What is your investment horizon? Ask yourself if you will need your savings in the short or medium term, for example, to finance a project, or if you want to invest for the longer term. A short investment horizon will require you to reduce the risks as much as possible, while a long one means time to recover if a higher risk, higher reward investment does not pay off.
  • What is your risk tolerance? Evaluate your ability to tolerate the risk of losing the capital you have invested. Consider your financial capacity to weather a lose losses, but also your emotional capacity to do so. Risk tolerance varies from one individual to another.

Depending on the answers to these questions, here is what your investor profile might be:

Investor profileConservativeModerateAggressive
AgeOver 6040 to 60 Under 40
Situation FamilyCoupleSingle
ObjectivesComplimentary incomePrepare for retirementLong term investment
Time horizonShort-term (less than a year)Medium-term (1 to 5 years)Long-term (5+ years)
Tolerance of riskWeakMediumElevated
Investor profile types

What are the different investor profiles?

Let's now go into the details of each typical investor profile, starting with the three most common profiles:

Conservative investor: Conservative investors are often approaching retirement or they have dependent children. They prefer short-term investments and may wish to generate additional income. They want low-risk exposure and a regular, stable return. The conservative investor will therefore focus mainly on fixed-income investment products such as bonds or debt securities.

Balanced investor: Balanced investors are often between 40 and 60 years old. They aim for a medium term investment horizon between one and five years. They want to save for their retirement while building a portfolio that balances risk and return. For example, half of their portfolio could be made up of guaranteed investments and the other half of more speculative investments.

Aggressive investor: This investor is generally under 40 years of age and has no dependent children. The aggressive investor peruses long-term investment and can afford to take more risk of losses that can be compensated over time to generate a better return on investment. A large part of his portfolio will therefore be composed of many diversified, non-guaranteed assets.

It is also helpful to think about investor experience and knowledge

Beginner investor: beginner investors are taking their first steps in the stock market and are less knowledgeable of investment and markets. They may therefore choose to turn to passive management solutions such as mutual funds or exchange-traded funds, which will provide good diversification without having to choose assets themselves. Investment advisors and robo-advisor can also be good fits for novice investors.

Knowledgeable investor: The knowledgeable investor is an investor who knows the familiar with markets and how they work. They often master technical and fundamental analysis and are therefore able to build a stock portfolio on their own. This type of investor may work with a stockbroker or an online investment platform to place orders and manage investments.

Risk investor: finally, the risk investor seeks to generate a maximum return by taking advantage of the volatility of the markets. They may invest in promising assets such as cryptocurrencies or speculate on specific stocks on the stock market. They aim to grow capital rather than to generate a passive return. However, the risk investor must have good knowledge of the markets and spend a lot of time monitoring investments and detecting opportunities.

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How to invest according to your profile?

Here is how to invest according to your investor profile:

Investor profile Objectives et characteristicsAsset typesSources of advice
Cautious or conservative
  • Preserve your investment in the short term
  • Prefer a lower but regular and predictable return
  • Wants to be able to recover his capital at any time
  • Has an investment horizon of less than one year
  • Bonds
  • Debt securities

  • Robo-advisor
  • Portfolio Manager
Moderate or Balanced
  • Develop your capital with a controlled risk
  • Wants to take advantage of dynamic markets without risking your wealth
  • Accept short-term capital losses
  • Has an investment horizon of 2 to 5 years

  • Money market assets
  • Stock market shares
  • Bonds
  • Funds
  • Cryptocurrencies

  • Robo-advisor
  • Portfolio Manager
Dynamic or Aggressive   
  • Has a good understanding of his personal situation
  • Has a high-risk tolerance
  • Can assume capital losses in the medium term
  • Has an investment horizon of more than 3 years
  • Has good investment knowledge

  • Equities
  • Cryptocurrencies
  • Funds

  • Brokerage platform
  • Robo-advisor
  • Portfolio Manager
Investment strategies based on profile

Top tips for investors

Before starting to invest in the stock market, consider the following points, understand your goals and your risk tolerance.

  • Define your investor profile and goals precisely: You need to know what you expect from your investments and what your risk tolerance is. Potentially high returns usually imply higher levels of risk. You should also take stock of your knowledge to determine whether you are capable of managing your investments alone or should call on the services of a specialized advisor or a robo-advisor.
  • Choose your intermediary: Different intermediaries are available depending depending on your strategy and profile. Online brokers let you invest independently or with the help of an investment advisor. You can also opt for a robo-advisor. In any case, compare offers to find the one that best suits you.
  • Compare rates and fees: stock market transactions are not free. You may have to pay entry, brokerage or management fees. It is therefore wise to compare the fee schedules of each of these market players. Compare online brokerages and robo-advisors through HelloSafe.
  • Take an interest in your investments: Only invest only in instruments and assets that you understand. For example, before investing in a mutual fund, take the time to understand how it is managed, by whom and what is in it. Even if you are a novice investor, this will help you build knowledge and choose the best investments moving forward.
  • Don't take unnecessary risks: Finally, never invest money that you need for daily expenses. Remember that risk and reward are correlated. You can lose with many investments particularly if you need your your money back in the short term.

What kind of investor are you?

Before deciding on the types of investments for you, it’s important to know your investor profile and clearly define your investment goals. 

Start by asking yourself these simple questions:

  • How much money do you have available to invest?
  • What is your investment horizon, meaning do you want to invest in the short, medium or long terms?
  • Why are you investing?
  • What are your financial goals?
  • What is your risk tolerance? 
  • How much are you willing to risk?

Thoughtful answers to these questions will let you know what type of investor you are. Alternatively, a financial advisor can help walk you through it.

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Once you know your investor profile, consider your goals and weigh your risk tolerance, continue below to see what types of investments match your investment profile. 

Investor ProfileAboutRecommend Investment Types
Minimal risk
  • Very low-risk tolerance
  • Short investment horizon
  • Favours safety over growth
  • Accepts lower returns
  • Secured savings vehicles
Prudent
  • Low-risk tolerance
  • Accept a minimal loss of capital
  • Short-term investment horizon
  • Accept modest returns
  • Strive for income stability
  • Prefers funds that invest in fixed income securities

  • Stocks
  • Fixed income securities
  • GICs
  • ETFs
  • Mutual funds
  • Robo-advisors
Conservative moderate
  • Low tolerance for portfolio volatility and loss of capital
  • Tolerates short-term fluctuations in investment returns
  • Accepts small losses of capital in exchange for the possibility of small capital appreciation
  • Stocks
  • Fixed income securities
  • GICs
  • Mutual funds
  • Robo-advisors
  • ETFs
Moderate
  • Moderate tolerance for risk and loss of capital
  • Tolerates slight fluctuations in investment returns
  • Tolerates moderate capital losses
  • Medium-term investment horizon
  • Objective to create stable income and long-term capital growth
  • Fixed income securities
  • Stocks
  • ETFs
  • Robo-advisors
Aggressive
  • High tolerance for risk and loss of capital
  • Tolerates wide fluctuations in investment returns
  • Risks moderate to large capital losses in exchange for long-term returns
  • Does not require income from investments
  • Medium-term investment horizon
  • Stocks
  • Cryptocurrencies
  • Online brokerages
  • ETFs
Very aggressive
  • Very high tolerance for risk, volatility and loss on investments
  • Tolerate large and sustained fluctuations
  • Willing to accept large capital losses
  • Has extensive investment knowledge
  • Does not require income from investments
  • Long-term investment horizon
  • Stocks
  • Online brokerages
  • Cryptocurrencies
Best investments for each investor profile
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