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Assess Your Risk Profile, Invest in the Right Instruments

There is always a risk behind the gains made from an investment. The greater the profit to be achieved, the greater the risk to be faced. Therefore, every investor needs to know the types of risks and their risk profile categories.

Capital Market Investment Risk

The capital market is an investment alternative with risks that are closely related to macroeconomic conditions and the performance of listed companies. Here are some capital market investment risks that investors often face.

1. Liquidity Risk

Liquidity is the ability of companies to meet current liabilities using their current assets. Liquidity risk arises when the ratio of assets to those liabilities (current ratio) does not reach 100 percent.

2. Delisting Risk

The removal of a company's shares from the stock exchange can be caused by several factors such as poor performance, violation of regulations, or bankruptcy. In addition, issuers can also withdraw their shares from the public due to mergers or just want to become a private company.

3. Capital Loss Risk

A decline in stock value is a common risk that investors face, especially for short-term traders. To anticipate this, investors or traders usually use the "take profit" or "cut loss" feature to sell their stocks when they reach a certain price.

4. Inflation Risk

A high inflation rate tends to have an adverse impact on a company's profit margin. People's purchasing power declines, currency values weaken. Uncertainty about interest rates and income growth contribute to market volatility. Investor confidence declines, resulting in a period of downtrend.

5. Regulatory Risk

Similar to inflation, regulatory risk also affects market sentiment. Interest rate hikes, changes or issuance of new laws, and certain political circumstances will trigger negative sentiments that are ready to lurk in the capital market.

Three Categories of Investment Risk Profiles

Risk profile is the initial guide in choosing an investment product. It generally considers the availability of funds, knowledge and experience, risk tolerance, and financial goals of each individual.

Investment risk profile

Here are three categories of investment risk profiles or commonly referred to as investor types.

1. Conservative

Conservative investors are very risk-averse, aka low-risk takers. They play it safe with investment products that have minimal risk and low return opportunities. This type of investor chooses bonds (debt securities), money market funds, and/or fixed income funds to fill their portfolio.

2. Moderate

A moderate-risk profile is between conservative and aggressive, where investors tolerate some risk but are not fully willing to take it. Moderate-risk investment products include balanced mutual funds and blue chip stocks (IDX LQ45).

3. Aggressive

This is the most risk-taking profile: the aggressive investor. This type of investor is not afraid to face high market volatility in order to achieve great return opportunities. Aggressive investors usually actively trade stocks (other than blue chips) and equity mutual funds.


Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).

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