How comfortable you feel about risk is known as your risk profile. Generally, the higher the level of risk you are prepared to accept, the higher the potential gain or loss.
Shares are one of the riskier asset classes. Their value can rise and fall significantly over the short term but they have delivered the best average returns over the long term. Conversely, cash is one of the least risky asset classes. You have little chance of losing your capital, but the returns are likely to be the lowest on average over the long term.
Are you cautious, aggressive, or somewhere in between?
Generally speaking, cautious investors don’t like negative returns. They usually focus on short-term performance and pursue lower-return options with lots of defensive assets, like cash-related investments.
The 'somewhere in between' or moderate investors tend to take a more balanced approach. They have a medium-term outlook of around five years and accept moderate risk. They don’t usually have the time or inclination to weather market cycles. Moderate investors generally choose a balanced mix of assets.
Aggressive investors seek higher returns. They seek above-average performance and will usually be comfortable with above-average risk. Aggressive investors tend to take a long-term view and mainly invest in growth assets such as shares.