What is Risk Profile in Risk Management?

“Not taking risks one doesn’t understand is often the best form of risk management.”
― Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy

Rohit Patel, a financial planner, insists on couples participating in portfolio reviews, rather than only the man or woman. There are common financial goals in a marriage, and decisions impact both equally.

However, Rohit’s resilience and wisdom are put to test, when partners display a different risk appetite.  One may show moderate-to-high risk appetite, while another is very conservative. 50:50 distribution of resources in different asset classes is not the best solution here. Maybe, risk mitigation keeps the conservative partner happy.

Rohit first needs to assess at what stage of life they are, and what are the priorities.


1. Alpha stage

Single, earning but child free.

They could be staying with parents or living independently.

2. Bravo stage

Married, but childless

3. Charlie stage

This stage starts at the birth of the first child.

4. Delta stage

Children are grown up, but dependent.

5. Echo stage

This is also called empty nest syndrome in common parlance. Children are no longer dependent and have moved away.

6. Foxtrot stage

This is retired life.


The stages cannot be mapped to age groups, as some people may remain single or child-free for long. Some may choose to retire early.

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Retirement needs are common as nobody wants to depend on children in their old age. However, the psychological need for financial security is higher in the case of single or child-free couples, as they do not see a support system to fall back on.

Risk appetite is high in Alpha and Bravo stages, but they also end up spending all their income and incurring debt to buy a house or car.

Parents in Charlie and Delta stages show the highest level of interest in financial planning, as they juggle priorities. In general, they are at the peak of their careers with the highest level of income they are likely to reach. In certain cases, the income may see a fall, if one parent chooses to quit work and become a stay-at-home parent.

Echo and fox-trot stages are where consolidation and stability matters. Some people may still be shouldering responsibility of old and sick parents at this stage. Risk should ideally be minimal, but will depend on the total net worth of individuals involved. A high net worth enables one to take higher risk.


Time horizons make a lot of difference.

The discussion that Rohit holds proceeds on the following lines.

  • How concerned are they about returns beating the inflation rate?
  • Do they need investments which are tax efficient in the prevailing scenario?
  • Is safety of money or capital stability the highest concern?
  • Are they investing in something only to leave it as a legacy for future generations?
  • If maximization is the goal, what is the target rate they are looking at and what is an acceptable level of risk? What is the quantum of money they can afford to lose should things go wrong?
  • How much liquidity and when?
  • What is the level of comfort with and understanding of financial products? Are they savvy enough to invest in crypto, non-fungible tokens, direct equity or P2P lending?
  • Do they want a constant churn in portfolios and periodic risk assessment? Or are they happy to let things be, unless priorities change?

“To be a successful investor, you don’t need to take excessive risks and be involved in all sorts of financial instruments. You need to understand your risk appetite and understand a few asset classes well. Stay within your boundaries, and your wealth will grow at a decent pace.”
― Naved Abdali

The task of mapping resources to financial goals follows. What is tougher than deciding an asset class mix is to determine the percentage of assets allocated to each class, and choosing the right financial instruments.

Engaging a financial planner ensures a helicopter view, rather than letting the partners follow individual path. Financial independence and independent decisions are great for the relationship and mental health. However, a collaborative approach ensures there is no overlapping or gaps in the financial plan.

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