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To Thine Own Self Be True—Preparing your investor profile

By Jackie McCann-Scott, CHS, CFP

These are turbulent times to be an investor. Hyperinflation, rising interest rates, supply chain issues, climate change, and geopolitical unrest abound. We are constantly being bombarded by traditional and social media enticing us with the next big thing or telling us what to fear next.

It is easy to get lost in the noise.

Being clear about your goals and values is more important than ever. An investor profile is a great tool to help you gain that clarity. Comprising a series of multiple-choice questions with each answer assigned a point value, this questionnaire creates a score that informs your advisor of the type of investment mix that is best for you. If you are getting ready to invest or to revisit your current investment strategy, here are a few thoughts to ensure your profile captures the true you.

Set your intention

Every investment should start with answering the fundamental question “What am I trying to accomplish?” The more specific you can be in answering that question, the easier it will be to answer the questions that follow. You will have given your answers context. More importantly, you will have given them purpose. Knowing why you are investing will keep you committed to the plan when markets drop and panic inevitably sets in.

Define your timeline

The intention for the investment will dictate the timeline needed to hit your target. For example, depending on your age, saving for retirement may have a longer timeline than saving for a dream vacation. Identifying the timeline informs how much you need to set aside and the type of interest rate you need to earn in that time to achieve the goal. Failing to understand your timeline could also result in you taking on more (or less) risk with your investment than is suitable.

Understand where you are

Motivation lies in the gap between where you are and where you want to be. If setting your intention paints the picture of the destination, this step in the process allows you to see where you are starting out from. Documenting your current savings, debts, employment stability, and cash flow is a key step to gaining this awareness. It will also help you understand how much risk you can afford to inject into your plan. While you may have an appetite for risk, do you have the capacity to manage risk given your current circumstances?

Acknowledge your risk tolerance

Research has shown that people are generally more motivated to avoid a loss than they are to pursue a gain. This is known as loss aversion. This section of the profile paints various scenarios to gauge your reaction to how much loss you naturally will avoid. It also aims to determine how long you could hold fast in a market downturn. Answering these questions hypothetically will give you a reference point for when things get rocky in the real world. It will be helpful to refer to these answers in times of turbulence to ensure your investments are remaining true to those predefined risk boundaries.

People (and profiles) change

Completing an investor profile is not a “set it and forget it” exercise. As life happens and goals evolve, revisiting your profile and modifying your investment mix may be warranted. This is not to be confused with abandoning the plan when times get tough, but rather adjusting your sails and continuing to chart your own course.

 


Jackie McCann-Scott is a certified financial planner (CFP) and a certified health insurance specialist (CHS). With more than twenty years in financial services, Jackie has built a fresh and forward-thinking financial planning practice that aims to educate and empower the clients it serves. She recently led an initiative to help improve the financial literacy of the province’s youth and is a regular guest on local radio, where she helps people gain clarity on a wide array of financial topics. She also wrote a financial column for the Telegram, “The Invested Mama Minute,” for three years and is a past contributor to The Advisor

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