A risk profile is a portrayal of the risk appetite of an investor. It is done by assessing an individual’s capacity, interest, and willingness to take and manage risks. A risk profile aims to provide an objective understanding of risk by assigning numeric values to variables that indicate various risks and the dangers they entail.

Risk-averse

Risk aversion is the tendency to avoid taking risks. A risk-averse investor prioritizes capital preservation over the possibility of a higher-than-average return. Risk-averse investors are interested in the assets with the lowest risk, and the weight of their investments is more significant to them than the cumulative returns. Most of the time, these investors would choose investments with lower returns with the least risk. As is evident, risk-averse investors prioritise the return guarantee more than the investment's rate of return. For investors with a low tolerance for risk, the guarantee is more important than any alternative outcome.

Risk-averse investors are interested in assets consistently performing well over an extended period. Assets that offer low but guaranteed returns over a given term are considered safe and secure investments, attracting risk-averse investors.

Risk-averse investors typically invest significant sums of capital in assured assets rather than gambling with uncertain and high-return instruments. Risk-averse investors are more likely to focus on highly rated Government Bonds and index funds tracking relatively stable markets like the S&P 500

Risk-neutral

Risk neutral is a term used to characterise an individual's attitude in analysing investment alternatives. If an individual is risk neutral, they are more likely to prioritise returns and select investments with higher expected returns.

The guarantee of minimal returns is of no use to a risk-neutral investor. They want the highest possible returns from the markets, even if the risk is high.

A risk-neutral individual will essentially always select the assets with the highest possible gains or returns, regardless of the potential consequences. Individuals and organizations seeking the maximum return on investment can be considered risk-neutral investors. A risk-neutral investor is more likely to invest a significant portion of their portfolio in a single company or a group of selected companies. This style of investing requires active participation, as the investor needs to be able to react to market movements.

Risk-seeking

Risk-seeking is the acceptance of more risk in exchange for the probability of higher returns. Risk-seeking is frequently associated with price volatility and uncertainty in investments and trading. Risk-seekers are more concerned with capital gains from speculative assets than capital preservation from lower-risk investments. Investors willing to take on more risk tend to focus on international and small-cap stocks, Cryptocurrency, Early stage startups and alternative assets like Art and Wristwatches. They prefer growth investments to value investments

Experts advise that risk-seekers conduct additional due diligence because the investment they intend to make carries a greater risk.

Your risk profile may evolve based on the stages of your life. Perhaps your income has changed, or you have new objectives, etc. Therefore, what was appropriate and effective for you when you were younger may not be the same when you are ready to retire.