Personal Risk Profile - Essay Example

As a neutral investor, from the investment choices, I would like to select bank deposit i.e. term deposit in term deposit where I can get 6% interest on my investment annually and requires only $ 25000 as a minimum deposit and having only 2 years locking period. The term deposit gives safety besides assuring a consistent return. After the 2 years, I can withdraw the money at any time which means the liquidity of fund. If I have $500000 in my hand by depositing the cash in the bank as a fixed deposit I will get 6% interest on the deposit which is 500000 * 6 / 100 = 30000.

Investing money in the bank account as a fixed deposit would enable me to earn an interest of $ 30000. In the bank account, cash management is also a good choice because it provides an interest rate of 6.4% annually and it requires a lock-in period of only two years. The minimum deposit begins at $ 10000. Bank deposit is thus a safer and reliable investment compared to corporate bond and investment in shares. As a neutral investor, I am not willing to take many risks and I am seeking a safer investment area.

Investments in shares are riskier even if it provides a good return. However, such investments are subject to several factors. There is also a high possibility of sustaining losses when the market crashes for some or other reason. The market conditions remain very volatile. On the other hand, if I invest in bank deposits, there is a proper guarantee of the return though it is comparatively less. Thus, as a risk-neutral investor, I will choose bank deposit as my preferred method of investment.

Risk aversion connotes to an investor’s attitude in an investment option where he prefers lower risk area. “A risk-averse investor dislikes risk and therefore will stay away from adding high-risk stocks or investments to their portfolio and in turn will often lose out on higher rates of return. Investors looking for "safer" investments will generally stick to index funds and government bonds, which generally have lower returns” (Risk Averse, 2011, para. 2).