FlexInvest by HSBC

The following example is for illustration only and not intended as advice.

A popular and simple method for building a multi-fund portfolio is to use the Lifestyle Investing Method. To do this, take your age from 100 to calculate your asset allocation. So, if you're 25 years old your asset allocation would be: 100-25 = 75, and your portfolio would be 75% equities and 25% bonds.

What's good about this method is that it's easy to understand and it naturally manages your risk profile as you get older, meaning that you can adjust the ratios in your portfolio from time to time. A younger investor with a 30 to 40-year investment horizon can probably afford to take more risk and may opt for a 90/10 split between equities and bonds (it's a personal choice).  

As you're approaching retirement though, or if you're going to need the money in the near future, you'll want to protect your investments by moving them to lower risk funds e.g., a money market or bond index fund with a low-risk rating.

Remember though, this is just a rule of thumb. Your age, your investment goals and your risk tolerance can help inform your asset mix, but this is a great place to start.

Janet can see there are 3 equities funds available with a risk rating of 4 and two with a rating of 5. She focuses on funds within her risk tolerance. For each one she reviews the performance charts and the annual management fees. She also clicks the button to see each fund fact sheet and looks at asset allocation within the fund as well as reading other important information.

She notices that two of the funds have invested their money in similar types of sectors, and as she has decided she wants to split her money into two equities funds for further diversification, she chooses two that are different.

She knows it's free to purchase each fund and a subscription fee of HKD28 per month will be charged once her portfolio is greater than HKD10,000. This is good because she understands the value of compounding returns and having lower fees, and as she's just getting started this can help her meet her long-term objectives.

You might be familiar with the phrase: "you have to risk money to make money" or with the concept of risk and return, where higher risks can lead to higher profits. 

Here's the problem. While it may be true that riskier investments can sometimes lead to higher returns it's also equally true that they can lead to significant and even catastrophic losses. 

You need to determine your own personal risk tolerance by taking our Risk Profile Questionnaire (you can do this directly in the app). This asks you 6 questions designed to help you understand what kind of losses, actual and psychological, that you can withstand in the value of your investments and still be comfortable.

Once you've taken the Risk Profile Questionnaire, you will be given a score between 1-5 that tells you what your risk rating is. All of our investment products, except individual stocks, display a risk rating that lets you know whether that product matches your risk tolerance.

A few key things to keep in mind:

• Your investing time-horizon can be a factor in determining how much risk you can take on. If you're young and you have a long investment horizon, you can probably tolerate greater risk than someone who is older and nearing retirement, for example, or if you were investing for the near term.
• Your total net worth can be a factor too. If you have a larger disposable income, for example, you may be able to financially withstand greater losses.
• Your risk rating is guidance based on what you tell us. It is possible to invest in products above and below your Risk Rating, but you have to make that decision yourself.

Technically yes, but you have to make that decision for yourself. So, if you take the Risk Profile Questionnaire and it gives you a risk rating of 3, for example, but you want to buy an investment product with a higher risk rating, you can do that, but you have to understand the risks of loss involved. So, if you were constructing a portfolio with bonds and equity funds, you might add a lower ratio of equity funds that allow you to take some risk, but not too much. You must decide for yourself what that ratio is. It's important to consider your overall financial well-being, risk appetite, investment horizon and market volatility as you make your decision. Using the Lifestyle Investing Method is a great starting point and you can adjust from there yourself until you reach a level that is comfortable.

FlexInvest brings together three different types of funds you can choose from. You should always read the individual fund fact sheets to understand their investment objectives. If you need some help learning how to read them, download our guide to understanding fund fact sheets[pdf].