How to determine your risk profile

Would you have the courage to jump out of a plane with nothing but a parachute? Have you ever resigned from a job without having another one lined up? Our willingness to take risks is evident in every area of our lives – including our investment behavior.

A 2024 investment study by the online comparison service Moneyland demonstrated that most investors in Switzerland are conservative. Private and savings accounts were the most popular among respondents, even though these are not considered real investments, such as real estate, commodities or dividend-paying securities, because they yield little to no return. In addition, the 3a savings account is particularly popular with 62 percent of Swiss clients, followed by real estate with 38 percent, Swiss stocks with 36 percent, and ETFs (exchange-traded funds) with 34 percent. Exchange-traded funds are passively managed, meaning they replicate an index. ETFs are less expensive than actively managed funds due to their passivity. Investments can be made in all asset categories. Whether the investment behavior is conservative or aggressive mainly depends on your risk appetite and risk capacity. With the UBS Financial Personality Test, you can find out which risk profile suits you.

Experts understand risk appetite to mean all of the subjective factors that contribute to an investment strategy. Here, personal preferences are key: Which type of investment is of interest? What values guide the investment? The answers to these and similar questions are strongly influenced by a person’s age, gender or cultural background, for example. These and other factors determine how well clients can cope emotionally with a financial loss and how willing they are to take this risk.

Risk capacity, on the other hand, is determined by objective influencing factors. How is your current financial situation? Can you absorb losses well over a period of time?

In a nutshell: Risk appetite describes the level of risk you are willing to take on an emotional level. Risk capacity indicates your ability to take on risk from a financial perspective.

In connection with the risk, your investment horizon is also crucial. This includes the potential length of time of your investment. The investment horizon also describes the time required to offset short-term losses and fluctuations in expected returns.

In general, the following applies: All other things being equal, with a longer investment horizon you can make riskier and therefore more profitable investments, i.e., investments subject to larger fluctuations (higher volatility). On the other hand, if you have a short investment horizon, you should choose lower-risk investments.

Your conscious and unconscious beliefs or life circumstances have a significant impact on the nature of an investment. Some people are more risk-tolerant and therefore willing to accept potential losses. They invest in stocks and bonds that can be riskier but also more profitable. Others want to be sure that their savings are not at risk and that their investment generates stable returns over the years. They might also be planning to use their future assets mainly for retirement or to fulfill major life dreams and want to ensure – more so than risk-tolerant investors – that their money is securely invested.

Whether you are bold or cautious, a residual risk always exists, as every investment is subject to market fluctuations. However, if the money is not invested and, for example, is only held in a personal account, the chance of a return is lower and the saved assets may even lose value due to inflation. That’s why it’s important to find the right investment strategy for your own risk tolerance. If it’s not tailored to their risk appetite and capacity, investors quickly become dissatisfied because the strategy does not match their own personality and life circumstances. Therefore, in addition to understanding your own risk profile, it’s important to seek expert advice. UBS can partner with you to determine your risk profile and the appropriate investment strategy.

Every asset class follows different rules and therefore also carries a different risk for investors. Considered alone, the most well-known asset classes have the following risk:

For all investors, however, the first step is to determine your current status by drawing up a budget. You need to know your current income and expenses and what you can expect them to be in the future. This is the only way you can also determine which investment strategy is most effective with regard to your own risk profile. To lay the right foundation, budget planning and the investment strategy based on it can be carried out with expert advice from UBS. 

Investment tips for high-risk investors

Are you willing to take on high-risk investments? It’s always important to acquire the necessary knowledge. Observe the stock market and look into all the important topics such as technology, environment or world politics. A high-risk tolerance and trading with riskier asset classes require, in particular, a comprehensive view and constant vigilance. It is seldom possible to acquire this knowledge by yourself, which is why expert advice is advisable. Financial experts, such as those at UBS, understand all the key parameters and can provide recommendations based on years of experience.

Investment tips for medium-risk investors

Those who waver between risk and caution are advised to take a broad view of all asset classes. Diversification is the top priority here. Ultimately, every risk profile benefits from investment diversification.

Keep an eye on your portfolio and avoid making excessive adjustments to your investments, since according to experts, this is more likely to cause the value of your portfolio to decline. To spread the risk well, diversification can give you a broader base. Financial experts from UBS will help you select the right asset classes.

Investment tips for low-risk investors

Low-risk investors often rely on saving money by depositing it into a savings account or an insurance policy. Depending on the amount of interest earned it can increase in value or stay about the same. The disadvantage here is that due to inflation, your savings tend to lose value. Investors are exposed to the ups and downs of the financial markets. However, even less risk-averse clients have profitable investment options with long-term and diversified strategies. Our experts will help you find the right strategy.

Our willingness to take risks is determined by the sum of all experiences in our lives so far, both good and bad. By building up an initial financial buffer and putting the cornerstones of life in place – such as our family or housing situation – our risk capacity also solidifies. Both can change due to new circumstances or new experiences over the course of our lives. So it is always worth regularly returning to the question of your risk tolerance and capacity.

Whether you like to take risks and can afford to do so, or whether you are more financially and emotionally cautious, there is a suitable asset class for every risk profile. If you are unsure what is suitable for you and your profile, professional advice from UBS is worthwhile.