One of the conditions imposed on financial planners through the Financial Advisory and Intermediary Services Act (FAIS) is that a risk profile is mandatory to assess how a client's portfolio should be structured to align itself with their own risk profile.

There are a number of ways and questionnaires which will determine each individual's own risk tolerance. However, in most cases, if the investment strategy follows their personal risk profile, they would run out of capital, and thus income, during their retirement years.

No matter how sophisticated the questionnaire, I've learnt during the past 12 months how few people are willing or happy to lose money.

I conclude that just one question needs to be asked of investors when making a growth investment to establish how they feel about risk, and that is "How do you feel about losing 40 percent of your capital in six months?"

The word risk means jeopardy, peril, chance, danger and probability. This is interpreted by all of us differently.

Investments entail risk

Some may be nervous about putting their money in a bank, for fear the bank may not be there tomorrow. Worldwide we've just witnessed many banks disappearing, thus compounding this fear.

On the other hand, other investors may borrow to invest in extravagant schemes and may not even appreciate this as a risk. Other than bank deposits, most investments entail some form of risk. What is extraordinary is that many investors do not hear, want to hear, nor understand that investments have a risk factor attached and that their investment can depreciate.

Wealth is created through long-term planning, setting long-term strategies and deciding on the level of risk you're prepared to take. Who would want to invest in a share or a property today, if they could buy it for less tomorrow?

Ask yourself this question: "How do you feel when you walk past a store window having purchased goods prior to the annual sale and see the same goods the next day at half the price?"

Don't rely on market timing

Investing needs to be viewed in a different light. Market timing is not something you can predict with any sort of accuracy so you need to avoid relying on it at all. Even if you get it right once, it may not happen again.

Investing is about looking at all the fundamentals behind the decision. Fear or greed will, in the short term, invite a certain amount of sentiment which will dictate the success or failure or your investments.

When markets turn, most investors do not realise how quickly the first 30 percent-40 percent of the improvement is achieved. Markets have recently gone up over 40 percent and many small and large investors did not partake and some haven't even realised it. Investors tend to focus too much on investment risk. I suggest looking at other risks that exist, such as:

• Inappropriate advice or insufficient research;
• Systematic risk: the collapse of your investment institution;
• Regulations risk: poor regulations (existing in countries such as SA) which make it easier for the devious to rip you off;
• Product: if your selected route is not suited to your needs;
• The risk of not investing and therefore your money will lose value or you may miss an opportunity to make money;
• Timing: entering or exiting the market at the wrong time;
• Lack of diversification: investing in only one area of the market (such as gold);
• Overdiversifying: investing too widely, thus reducing the possibility of sound returns (such as too many different unit trusts);
• Incorrect asset class: you may, for example, have invested in a capital-growth asset when you should invest in an income-producing one; and
• Asset location: the country in which your investment lies may have a weak economy or a deteriorating political system (resulting in people being unwilling to invest further).

In my experience, all successful investors understand the risk they are taking when making an investment. They understand that growth investments go up and down. After all, there can be no gain without some pain.

If you are in business, you already appreciate the risks involved in growing a business. Often everything is on the line when personal sureties have to be given. So why be afraid to take a constructive, carefully planned investment risk?

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