Before you begin investing, it’s important to understand two key factors that will guide your decisions: your risk profile and your time horizon. These may assist in understanding which investments align with your goals, preferences and financial situation best.
Your risk profile reflects how comfortable you are with taking on risk in exchange for the potential for higher returns. Every investment comes with some level of risk, but the amount you're willing to accept will shape your investment strategy.
Here are a few things to consider when assessing your risk tolerance:
Are you willing to accept fluctuations in the value of your investments, or do you prefer more stability, even if it means lower returns?
How would you feel if your investments temporarily dropped in value? Understanding your emotional response to market swings can help you gauge your comfort level with risk.
Are you saving for something in the near future (like a home or vacation), or are you looking to build long-term wealth (like for retirement)?
If you prefer safety and stability, you might lean towards conservative investments. If you're comfortable with more volatility in exchange for higher returns, you might opt for growth-focused investments.
Your time horizon is the amount of time you expect to keep your money invested before you need to access it.
This timeline will influence your choice of investments:
(1 - 3 Years)
If you need access to your money soon-like for buying a house or a major purchase-you'll want to focus on lower-risk investments that are less likely to fluctuate in value.
(3 - 7 Years)
For goals in this range, you can afford some market volatility, allowing you to balance risk and return with a mix of safer and higher-growth investments.
(7+ Years)
If you're investing for the long haul-such as for retirement-you can take on more risk, as time gives your investments the potential to recover from short-term market dips.
Understanding your risk tolerance and time horizon helps you build a portfolio that aligns with your goals. By considering both factors, you can select investments that fit your comfort level and allow you to stay on track toward your objectives.
Use the tool below to indicate your risk profile and time horizon and find out which flagship funds are best suited towards you.
A unit trust pools money from multiple investors to invest in a diversified portfolio of assets. Investors hold units representing their share of the fund, with the value fluctuating based on the fund’s performance.
A Tax-Free Savings Account (TFSA) allows you to save and invest money without paying taxes on the interest, dividends, or capital gains earned until a certain contribution (R46 000/year or R500 000 over time). It’s a flexible way to grow your wealth while enjoying tax benefits.
Offshore investments refer to investments made in foreign countries outside your home country, offering potential tax benefits, diversification, and access to global markets.
A retirement annuity is a long-term, tax-efficient investment designed to provide you with income in retirement by saving for your future.
Risk level refers to the amount of uncertainty or potential loss an investor is willing to accept in pursuit of higher returns. It ranges from low-risk, stable investments to high-risk, high-reward options.
Time Horizon in investing refers to the length of time an investor expects to hold an investment before needing access to the funds.
1. Why is investing important?
Investing helps your money grow faster than traditional savings accounts by putting it to work in assets like stocks, bonds, and multi-asset funds. It also helps you beat inflation, build long-term wealth, and reach financial goals such as buying a home, funding education, or retiring comfortably. The earlier you start, the more you benefit from compound growth.
2. How do I know what type of investor I am?
Your investor type is determined by two key factors: your risk profile (how comfortable you are with potential losses or fluctuations in value) and your time horizon (how long you plan to keep your money invested). Conservative investors typically prefer stability and lower-risk funds, while aggressive investors may pursue higher growth and accept more short-term volatility.
3. What is a risk profile and why does it matter?
A risk profile measures your willingness and ability to absorb investment losses in pursuit of higher returns. It considers your emotional response to market swings, your financial goals, and your investment timeline. Understanding your risk profile helps ensure you choose a fund that suits your comfort level and keeps you invested through market ups and downs.
4. What is an investment time horizon?
Your time horizon is how long you plan to keep your money invested before you need to access it. Short-term investors (1–3 years) typically need lower-risk, more stable options. Medium-term investors (3–7 years) can tolerate some market fluctuation. Long-term investors (7+ years) can generally take on more risk, as markets have more time to recover from dips.
5. What types of investment funds does Prescient offer?
Prescient offers a range of fund types to suit different investor needs, including Unit Trusts, Tax-Free Savings Accounts (TFSAs), Offshore Investments, and Retirement Annuities. Each option has different tax implications, risk levels, and minimum investment periods, making it important to choose the one that aligns with your goals and circumstances.
6. What is a unit trust and how does it work?
A unit trust pools money from multiple investors into a diversified portfolio of assets such as equities, bonds, or money market instruments. Each investor holds "units" in the fund, with the value of those units rising or falling based on the fund's performance. Unit trusts are managed by professional fund managers, like those at Prescient, who aim to balance risk and returns.
7. What is a Tax-Free Savings Account (TFSA)?
A Tax-Free Savings Account (TFSA) allows South African investors to grow their money without paying tax on interest, dividends, or capital gains earned within the account. You can contribute up to R36 000 per year and R500 000 over your lifetime. It's an effective way to build wealth, especially over the long term.
8. What is a Retirement Annuity (RA)?
A Retirement Annuity (RA) is a long-term, tax-efficient investment designed to help you save for retirement. Contributions to an RA are tax-deductible up to certain limits, and your investment grows in a tax-sheltered environment. You can only access RA funds from age 55, making it ideal for disciplined, long-term retirement planning.
9. Can I invest offshore with Prescient?
Yes. Prescient offers offshore investment options that give you access to global markets outside of South Africa. Offshore investments can help diversify your portfolio, reduce concentration risk in a single economy, and potentially benefit from stronger currency performance or global growth opportunities.
10. How do I start investing with Prescient?
You can get started by using Prescient's interactive fund-finder tool on the New to Investing page to identify which funds best match your risk profile and time horizon. For personalised advice, it's recommended to speak with a qualified Financial Adviser. You can also reach out to Prescient directly or invest online via their secure portal.
This tool does not take account of your financial affordability or personal needs. It is not intended to provide recommendations, guidance or proposals regarding the purchase of any financial product. It assists you in understanding your choices. For advice regarding the funds that would best suit you, please speak to a Financial Adviser.
Please enter to search or esc to cancel
