20% of our job at 5Mastery.com Goal Fund Management is managing risks. The remaining 80% is automated – the computer does that for us and it does a very good job of it. The percentage distribution is not in proportion of importance but in proportion of amount of work involved. 80% is pushed to the computer and that is the part that is difficult for us to do even if we try to. How will we be able to able to monitor the market 24×5 without automation? So we worked hard to develop in-house our Expert Robot to monitor the market and take trades for us. It will also tell us if anything strange is going on in the market or account. That way, we can relax knowing that the computer never sleeps and it will behave as programmed. As we learn new things, we adjust the codes to do that.
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In fact, the Robot does some of the risk management by alerting us. E.g. we set a draw down level for each customer account and the system will tell us when such threshold is hit. if we have asked it to take an action e.g. to stop taking new trades, it will also do that.
There are still some things we have not been able to make the computer understand and react to – e.g. Brexit. It does not know how the UK Law Makers will react or the buzz coming out of Brussels. So we intervene at those periods and may override the system signals. Fortunately there are not too many of such but it is worth paying attention to because their effect could be huge to our bottom line.
One thing humans do not do well is decision making. May be that is why the issue of Brexit exists in the first place. We are terrible at decisions and we hardly admit we make a mess of it. Just look at the number of debates going on everyday in different parliaments around the world. We make laws upon laws, we need to make a new one because the old one is either outdated or some smart lawyers have found some loopholes in it that are being explored. News things may have come that we did not know about e.g. Cyber theft etc.
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Our laws continue to grow and so does the law code. Then we have the lawyers and judges who have a job of knowing it enforcing it.
We can’t afford this in investment, we can’t throw things to the open and subject it to many interpretations. In his book, Principles, Ray Dalio challenged us to automate decision making as much as possible. He even asked us to do that even for human governance and decisions around it.
So we got to work to streamline our risk management to simple things we can relate to and apply. We started with 3 Risk profiles, then expanded it to 5 and now finally it is further refined, distilled and reduced to 3. Below you will find the characteristics of each and how we use them in Managing our Fund.
Our 3 types of risk profiles are Normal, Medium and Low. They are all expected to feature in your journey to financial freedom and the one you apply will depend on many factors. We are going to group the explanation into those factors to attempt to show how we use them.
We use risk profiles to control the amount we put at risk for every trade we take. It also controls at what point we start to take our loss if the trade does not go the way we anticipated. It does not affect where we take profit but it has effect on overall profitability. Please note that Normal risk may return less than Medium risk depending on market conditions. For example, we set a threshold of draw down at which point we start taking new trades. It is the same percentage for each risk profile. However, Normal profile is likely to hit the threshold before Medium (for example), that will mean no new trades are taken on such a Normal Risk profile account. If many new trade signals are generated during the “hibernation” stage of a Normal profile, Medium and Low Risk accounts may be getting those signals which may potentially mean they will make profits in the future that Normal account may not participate. In this scenario, Normal Profile may make less profit than Medium and Low Risk. There are other scenarios where Normal profile may make more profit if the % draw down threshold is not hit. What investors should bear in mind is that the concept of ” the more the risk more the profit” is not true in our risk management. What we are focusing on is not profit, it is risk management, it is capital preservation with a view to taking advantage of the Financial capacity of the investor.
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Why are we not focused on profit? Because our system will handle that automatically. It will make profit, it has been making it for years and will continue to make it. So that is done and dusted. The main focus is therefore to ensure we still have our Capital with us today, tomorrow, next week, next year, next decade and leave something behind for the generation coming behind.
In the following headings, we give more insight into factors you should consider in selecting you risk profile as an investor.
Starting Capital & Monthly Contribution
| Risk Profile | Starting Capital |
| Normal | If you are starting with less than 100K and you are willing to add about 1K to your account every month. |
| Medium | If you are starting between 200K and 500K
If you start with less than the above but about to add less than 500 dollars every month |
| Low | if you are starting 500K or more
if you start less than the above but unable to add anything to your account every month. |
At the initial stage of your investment with us, we encourage you to start it well.This is what we call the Launch pad (initial capital) and take off (monthly contributions) phase of the rocket. The launch pad has to be solid to sustain the force of take off. So put in as much as you can but not enough to put your overall financial life at risk. This is not a get rich quick scheme. It is not an alternative to your retirement fund. So do this with self control. You will need the monthly contribution to continue to fuel the rocket to propel it to orbit. Our strategy involves taking some equity draw downs (Not draw down based on Balance, our balance is usually going up steadily but we will have negative Profit & Loss position), it means we may have negative positions in our portfolio for some time. Your monthly contribution will smooth the curve and ensure you are always within the proprietary draw down thresh hold we use. That allows you to be in the game to take on all trades that are possible for future profit that leads to growth of your overall fund.
Apart from the above, most individuals rely on monthly income from their job rather than a big capital to start. Adding to your investment monthly using the Normal Profile ensures that your money is put into better use for trade and risk management. So use the table above as a guide in deciding which profile to select. For most monthly salary earners starting off for example, the Normal profile has proven to be very suitable.
Your Age
| Profile | Age |
| Normal | < 50 |
| Medium | Between 50 and 60 |
| Low | Over 60 |
This does not need much elaboration. The older you are, the lower should be your risk appetite. Hopefully you have also started investing/saving early and hence you have enough capital to start. Younger people tend to have less capital but able to make monthly contributions. Older people tend to have more starting capital but may not be able to make monthly contributions since they are either nearing retirement of have other commitments.
Your Risk Appetite
At the end, it may depend on your risk appetite. Fortunately we have ensured that no matter which risk profile you select, we are able to manage the risk to preserve capital.
Your Phase in Financial Freedom Journey
Which phase are you: Launch Pad? Take Off or Orbit? Or you have not started at all. That may depend on the risk profile you select.
If you have started with us and taking our coaching and lessons, then this is easy decision. We normally follow the path of Normal, then Medium and finally Low as you move in the 3 phases of our investment philosophy – Lunch Pad, Take off and Orbit. So if you are on the lunch pad, it will be Normal profile. That means you are just starting out. When your money hits 200K+ we recommend Medium and when you hit 500K we recommend Low.
Your basic needs, (emphasis on needs) do not increase with age. It is food, clothing and shelter. Therefore, as your fund grows, you should be decreasing your risk since your investment will be producing similar return in dollar value that will surpass your basic needs. The difference between the profiles will then be % return, this is not an issue for you because you would have balanced your life to be able live within the projected 3% return and still have more left over.
We hope this article will help you in your understanding of our Risk Profiles
What we do at 5Mastery.com
In case you are wondering what we do here: We coach people to attain a balanced and prosperous lifestyle by focusing on the following 5 Areas of life – Self Control, Life Purpose, Finance, Health and Relationship. We help people to attain Financial freedom through our Goal Fund where we target to return 3% profit every month. Yes, that is 36% a year. We are doing that very well as you can see on our track record here.
Register with us to enjoy your journey to a balanced and financially rewording life.
You can even try it free here.
