(Part 4 appeared last week)
Financial professionals who manage investments on behalf of clients, profile their clients according to the way they perceive the client’s willingness to take risks with funds invested.
Conservative risk profile: Aims for capital protection - takes very low risk
Your primary investment objective is to preserve your capital which is essentially the principal amount you have invested and to earn a predictable flow of income from your assets. This means you find it more reassuring to invest in products with fixed maturities and predetermined returns.
Defensive or moderate risk profile: Aims for gradual capital growth - takes low risk
Your principal investment aim is to gain a relatively stable and regular income. You are willing to take a moderate level of risk with assets you invest in. You aim to gradually increase the value of your portfolio over time.
Balanced risk profile: Seeks a balance between risk and return
Your main aim is to achieve capital growth over the long term. You seek relatively stable returns, but do not mind taking moderate risks. Nevertheless, you expect your asset to generate a nominal income.
Dynamic risk profile: Seeks long-term growth potential
You seek to grow the value of your portfolio over a long-term period. With the willingness to take a higher risk you intend to attract higher returns.
You are also aware of the short-term fluctuations in share prices and consider its temporary fall as a buying opportunity. In this case earning a stable income through an investment is of limited importance.
Growth or aggressive risk profile: On a determined quest for growth
Your priority is to generate capital gains. You are not afraid of speculating or going into what can be considered as risky economic sectors. You see a temporary market fall/setback as a buying opportunity.
Factors that affect a decision to sell shares
For many investors deciding to sell their shares can be more difficult than buying. There are many personal and market driven factors that can lead to a sell decision, including the risk profiles. Some factors to be considered are as given below:
The shares are no longer a good fit for your investment goals and risk tolerance
This might happen because your goals have changed over time. Sometimes an investor may find that the company he/ she invested in does not appeal to him or her as a good investment any longer. This would mean that you would systematically start selling the shares that were intended to grow to the financial goal you had planned.
Reinvestment opportunities
This is when you have identified a company that offers better returns than of the shares you currently hold. You can sell less advantageous shares in order to reinvest the funds in a better performing stock.
It is important to consider how your new purchase will fit into the rest of your portfolio and your strategies of investment.
Price movements
If a share price suddenly falls beyond a certain acceptable percentage, some investors consider this a ‘sell’ point, in order to eliminate the possibility of further losses. Keep in mind that you may need to have observed the price movements of a share and have some idea of the share’s volatility to identify an untoward fall in the price.
Overvalued shares
You may plan to sell shares when they are pushed way past their true value. A share is considered overvalued if its current price is not justified by its earnings outlook and is therefore, expected to drop.
Overvaluation may result from an emotional buying spurt, which inflates the stocks’ market price, or from deterioration in a company’s financial strength.
Courtesy: The Colombo Stock Exchange