A risk profile assessment is used to analyze a profile of an individual by assessing his/her
financial situation, financial goals and the willingness to take risks. This assessment procedure
is significant in order to understand the preference of an individual and then suggest them by
the most suitable investment product (Patersons Securities, 2019).
1.1 SUMMARY OF INTERVIEW
The highest appreciation to the interviewee, Chen Heng Siang (Chen), by contributing his time
and efforts in conducting the interview. By conducting an interview with Chen, we have a
clearer picture on his background, financial situation, financial goals, and his risk profile.
1.1.1 PERSONAL BACKGROUND
Chen is a 42-year-old man who currently lives in Kulim, Kedah with his family. He has
been married a good wife for 15 years and has a 9-year-old child who currently studies
in government primary school. Chen is the breadwinner in the family, he is financially
responsible to his wife and child. Besides that, Chen is thrifty, he always spends every
single cent on the “edge of knife”. He believes that saving is the most important way to
accumulate wealth though he acknowledged that he is not familiar with investment
1.1.2 FINANCIAL POSITION
Chen is a Senior Account Manager in a private company in Penang, Malaysia. He earns
RM9,000 per month but the net salary is around RM7,200 after the deduction of
monthly tax contribution, Employees Provident Fund (EPF), Employment Insurance
System (EIS), and Social Security Organization (SOCSO). He believes that his job is
secure as his position is not easier to be replaced in the current term. In regards to the
expenses, there is a total of RM5,200 monthly expenses incurred which include house
installment, family food consumption, groceries, utility bills, car petrol and car
maintenance, family insurance premiums, son’s education fees, entertainment, etc.
Then the monthly cash surplus of around RM2,000 will normally save into the savings
In term of personal assets and debts, Chen owns a single-storey terrace house in
Kedah, which current market value is RM200,000 (purchased in 2004); a 2006 Perdua
Myvi that current values RM10,000; a RM115,000 in normal savings account for
emergency purpose, RM350,000 in the EPF account and a RM500,000 (inheritance in
2016) in fixed deposit account for retirement savings. In regards to debts, there is only
a mortgage loan for his house which is around RM78,000. Chen has never applied for
any credit card.
1.1.3 FINANCIAL GOALS
There are four main financial goals that Chen currently concerns. For short-term, he
plans to take his family to Hatyai, Thailand for a vacation within a year, his medium
goal is about purchasing a new car – Proton X70, while his long-term goals are
purchasing a new double-storey terrace house in Butterworth, Penang as well as saving
for his son’s college education funds. The more detailed information will discuss in the
following 2.2 section.
1.1.4 RISK PROFILE OF CHEN
According to Fincash (2019), risk profile is the most significant assessment before
doing investment. This assessment can be conducted by three elements, which are risk
capacity, risk required, and risk tolerance. Risk capacity is defined as the level of the
risk that an individual could afford (Fincash, 2019). As stated in the section 1.1.2, the
financial position of Chen is considered as healthy since the monthly net cash flow is
around RM2,000 surplus and it is fully allocated to the savings, while the net worth of
Chen is around RM1,087,000 by using his total assets minus total liabilities. Besides,
he states that his job is secure and currently there is no any significant change such as
an increase in family members, which will result in an increase in the monthly expenses.
Therefore, it can be concluded that he is able to take high risks.
Furthermore, risk required refers to the risk level that an individual needs to take
to reach his/her financial goal (Renaissance, 2019). It is associated with an individual’s
risk capacity. By understanding the risk required, the investors will potentially know
what kind of investment product they should take on (Fincash, 2019). In this case, Chen
would like to achieve four financial goals within 1 year, 2 years, 5 years, and 9 years
which can be categorized into short-term, medium-term, and long-term. Since the total
financial target amount is higher than his risk capacity, thereby it can be concluded that
a medium to high on risk level is required in this consequence.
Lastly, risk tolerance is the level of risk that an individual is comfortable with.
It can be referred to someone’s willingness in accepting a fluctuation in the market
which will affect the goal achievement (Thune, 2018). In this instance, Chen does not
willing to invest in any risky product such as stocks, futures, and options. However, he
understands that low-risk product is stable but the return is also low. Hence, a moderaterisk of product, such as unit trust, is acceptable by Chen since he believes that the fund
managers are trustable as they will have a better investment knowledge than him.
However, he also understands that there is no guaranteed return on some moderate-risk
2.0 FINANCIAL GOAL
Table 1: Financial Goals of Chen
A financial goal is a goal that set based upon money, and the goal setting is critical to financial
planning (Quicken, 2019). In fact, the financial goal is the foundation for planning,
implementing and analyzing the progress of the financial activities such as saving, spending
and investing (Kapoor et. al., 2010). A SMART approach should be taken with goals that are:
Specific – know exactly what the goal is; Measurable – could be measured by a specific amount;
Action-oriented – the action should be taken in order to achieve goals; Realistic – must be
based on current income and living conditions; and Time-based – time range for achieving the
goal, it can be categorized as short-term, medium-term, and long-term (Kapoor et. al., 2010).
Besides, a discount rate is incorporated with the expected inflation rate, it should be taken into
account of the setting amount since it will affect the time value of money (North Dakota State
University, 2010). In this case, an average inflation rate of 2.37% will be conducted in
calculation (refer to Appendix 1).
2.1 SHORT-TERM GOAL
According to the definition from Kapoor et. al. (2010), a short-term goal is a goal that would
be reached within a year. As Chen mentioned in the interview, he wants to take his family to
visit Hat Yai, Thailand for a five-day family trip during the next year’s mid-year school
holidays, which is in June 2020. He is planning to take 3 hours self-driving from Kedah to
Hatyai. Chen and his wife have done some research on the trip itinerary. The traveling budget
they set for this trip is RM4,000 which includes the accommodation, petrol and toll fees, meals,
as well as shopping. By achieving this, Chen plans to allocate a RM350 from the monthly cash
surplus in order to fund for this trip. In this case, we can conclude that this goal is specific and
realistic as Chen has capacity to meet it by his current financial situation. An accurate time
frame is also stated and the goal is measurable by its RM4,095 traveling budget after
considering the inflation effect and it is considered as achievable since Chen has taken action
by reducing the monthly expenses in order to save money for this trip.
2.2 MEDIUM-TERM GOAL
Medium-term goal is a goal with a time frame of 2 to 5 years (Kapoor et. al., 2010). Chen plans
to purchase a new car – Proton X70 in two years’ time later on his wife’s birthday, which is
29th September. The current market price for this vehicle is RM99,800 (Auto International,
2018). In this case, the discount effect should be taken into consideration and therefore, a 10%
of the down payment, which is RM10,459 is the target amount that Chen wants to generate. In
order to achieve this goals, Chen plans to allocate 22.5% of his monthly cash surplus to fund
for this goal. In this instance, this goal is specific, realistic, action-oriented and it can be
measured by the specific amount in an accurate time frame.
Another medium-term goal of Chen is regards to purchase a new house at Butterworth, Penang
in 5 years’ time, which is 2026. In this case, a specific goal with a specific time-frame has
created. The area he currently aims for is at Taman Pasir [email protected] Butterworth, and the current
market price is RM460,000 (PropertyGuru, 2018). According to the inflation mentioned above,
the expected future price of the house will be RM581,413 and therefore a 10% down payment
that Chen should prepare is RM58,142. This amount makes this goal to be realistic and
measureable. In term of the action taken to achieve this goal, Chen plans to utilize a certain
portion of his total savings, and allocate 30% of the monthly savings amount.
2.3 LONG-TERM GOAL
Long-term goal is the goal that planned to achieve in more than 5 years off (Kapoor et. al.,
2010). Although Chen’s son is 9 years old currently, Chen plans to start savings for his son’s
college education fees by allocating 30% of current monthly savings, since his son will be 18
years old in 9 years later. Chen set this goal because of concerns about the rising cost of higher
education, although this phenomenon does not only occur in Malaysia (Daniel, 2018). In
addition, Chen said that he will only send his son to the affordable universities, such as UTAR,
TAR College, etc., as compared to other locally branded universities, and therefore, it is
realistic to set RM148,162 as the education fund. This goal is specific, action-oriented,
measurable and time-based. He also says that if the costs in future exceed his expectation,
then his son will be asked to apply for government scholarship or education loan, such as JPA,
College Education Fund = RM 120,000
Cost after calculated the Discount Rate = RM 120,000 x (