Before deciding on what to invest in, you should be clear on the risk you are able to tolerate, i.e. your risk appetite. There are 4 questions you can ask yourself to be clear on this:
1. What is my emotional bandwidth?
2. What are my investment goals?
3. What is the investment timeframe I’m working with?
4. What are the current and expected market conditions?
Once you know your risk appetite, decide where to invest in. We have great investment products across all risk appetites for you to choose from.
For anyone making investments, a crucial factor to consider before putting your money into a specific investment is to determine what your risk appetite is. Determining your risk appetite isn’t as simple as going with how gutsy you’re feeling – after all, investing isn’t gambling. There are ways to effectively determine what risk appetite you can stomach— master this, and you’ll be making wiser investment decisions.
Your risk appetite is basically how much investment risk you can handle. Since all investments contain an element of risk, it’s important to first determine how much risk you can afford to take. Considering your current and future commitments, as well as how much investment capital you can afford to lose are good places to start. You should also ask yourself these questions when trying to effectively determine the risk appetite that’s appropriate for yourself.
The market is relentless, and it’s key to determine your ability to tolerate things like fluctuations in the market. If you find yourself rushing to pull out your money at the slightest market fluctuation, you’re probably someone who wouldn’t be comfortable with taking high risks, and are likely better off building an investment portfolio with minimal to low levels of risk. By that logic, if you’re an investor who’s willing to ride out the turbulence that is market fluctuations, perhaps you’re better emotionally able to take on investments with higher levels of risk.
Determine why you’re making this investment in the first place and what you’re trying to accomplish by it. Look at the big picture, and how this investment will fit into your overarching aspirations and the investment portfolio you’re trying to build. It’s essential that you know if by making this investment you want to preserve your capital, grow it, get a regular income from it or have liquidity.
Your risk appetite can rise and fall as your investment timeline progresses. Your investment timeline essentially measures both your age and how much time you have to reach you financial goal. Generally speaking, the closer you get to your retirement, the lower your risk tolerance will likely get. This is due to less time being available to recover any money lost from market fluctuations. It should be noted, however, that this is a general analysis, and each individual differs in the size of their risk appetite relative to their investment timeline. Investment timelines are ultimately tied to investment goals— each goal has a definite investment timeline.
Even if your own personal circumstances have not shifted, the markets are likely to have. It’s quintessential that you monitor the market and re-balance your asset mix regularly, in order to maintain a balanced portfolio. Re-balancing your asset mix should be done whenever you go through different life stages, which would likely cause your investment objectives, timelines and risk profile to change. Right now, the market is going through a “K-shaped” economic recovery that will continue in 2021. Not to worry, we’ve put together some investment themes you should look out for in the new year so that you stay updated about how you might want to invest in this polarised economic recovery we’re facing.
Once you’ve determined what risk appetite you can afford to have, the next step would be to look into what type of investment you would want to put your “dry powder” into. According to this report by the CAIA Association, delving into private equity is a way to diversify your portfolio and reduce risk. Of course there are also other compelling reasons for entering the private markets, like projected higher returns— this article written by our affiliate company CapBridge covers 3 reasons why you should invest in the private capital markets.
At 1exchange (1X), we have an array of private market investment products for all risk appetites.
This product offers asset-backed investments with the objective of capital preservation, with modest guaranteed yields. Products offered are fractionalised ListCo bonds, property-backed debt/financing and savings bonds/instruments. Our capital preservation investments have a low risk level, are typically asset-backed, have minimal counterparty risk and have potential guaranteed yields. The target returns on these investments are at 2.5%-5%, with dividend returns.
Ideal for: Conservative investors who are looking to preserve capital.
This product offers asset or non-asset backed investments with higher yield returns. Products offered are private company bonds, project financing as well as property mezz financing. Our higher yield investments have a medium risk level, may not be asset-backed, has counterparty risk and may not have guaranteed yields. The target returns on these investments are at 5%-12%, with dividend returns.
Ideal for: Investors seeking higher yields but are okay with less protection from possible losses.
This product offers fractionalised investments into high growth companies, which are well-positioned for future growth. Products offered are pre-IPO companies, unicorns and growth-stage SMEs. Our late-stage, high growth investments have a high risk level, investments are made typically via equity, use a capital gains play and have a higher variation on returns. The target returns on these investments may reach up to 15%, with a capital gain returns.
Ideal for: Aggressive investors who are seeking capital appreciation and are willing to accept returns variability.
Private funds are specially designed product structures that incorporate guaranteed yield and/or growth opportunities into an easily accessible, balanced, managed package. Products offered are PE, VC and hedge funds, thematic funds and situational funds. Our private funds have a mixed risk level, because they are a combination of, or are variants of the other categories to achieve diversification and to balance risks. Target returns are up to 20%, with a returns type that is/are dividends and/or capital gain.
Ideal for: Investors seeking a broader selection of investment opportunities and greater managed positions.
Whatever your investment needs are, our team of private market investment professionals at 1exchange will be happy to be of assistance in helping you take action, or answer any queries you may have. Do drop us an email at firstname.lastname@example.org, and/or call us at +65 6381 9243 and we’ll be in touch.
The opinions expressed in this publication do not purport to reflect the opinions or views of 1exchange (1X).