C R U Z
Financial Planning
Risk Profiling

Understanding your
investment risk profile

This interactive workbook will guide you through key investment concepts, help you understand different portfolio profiles, and capture your risk preferences.

Adviser — session setup
Who is completing this workbook today?
Single client
One person completing
Two clients
Couple or joint clients
Is gearing / leverage an appropriate consideration for this client?
If yes, an additional educational section on gearing will be included in this workbook before the portfolio preference section.
No — standard workbook
Skip gearing section
Yes — include gearing
Add gearing education section
01 — Learn

Four key investment concepts

02 — Explore

Portfolio profiles & historical data

03 — Choose

Your preferences & acknowledgement

This workbook is of a general nature only. Your adviser will provide personal advice after considering all of your circumstances.
Cruz Financial Planning Pty Ltd AFSL: 532193 ABN: 81 618 516 135

C R U Z
Financial Planning
Concept 1 of 4 — Learn

Risk & return

Understanding the relationship between risk and potential reward is the cornerstone of investing.

One of the central investment concepts is the positive relationship between the level of risk of an investment and its expected level of return — the higher the risk, the higher the expected return. Although most investors prefer low risk, the risk/return trade-offThe principle that higher potential returns come with higher risk. Investors must decide how much uncertainty they are willing to accept in exchange for greater reward. can limit the potential for higher returns.

Risk & return spectrum
Low risk / Low return High risk / High return
Conservative

Lower risk, more stable returns. Suited to shorter timeframes. Examples: cash, fixed interest.

Growth

Higher risk, greater potential over time. Suited to longer timeframes. Examples: shares, property.

Most investors prefer lower risk — but being too conservative can limit long-term wealth creation. Finding the right balance is what this process is all about.

Did you know?

Over the 30 years to December 2025, a 70% growth portfolio returned an average of 8.4% per year — turning $100,000 into approximately $1,070,000 over that period.

C R U Z
Financial Planning
Concept 2 of 4 — Learn

Investment volatility

Volatility describes how much an investment's value moves up and down over time.

VolatilityA measure of how much an investment's returns vary over time. High volatility means larger swings — both up and down — in the value of your investment. is the difference between the returns you expect to receive and the returns you actually receive. A common measure is standard deviationA statistical measure showing how spread out returns are around the average. A higher standard deviation means returns vary more widely — indicating greater risk., which shows variation from the average expected return.

Figure 1: Average returns and volatility

A more growth-oriented portfolio can produce both a higher ceiling and a lower floor. Volatility cuts both ways — it is the price of higher long-term returns.

Did you know?

In the 30 years to December 2025, the worst single year for a 100% growth portfolio was -31.1% — but the best single year was +32.0%. Staying invested through downturns is key to capturing long-term gains.

C R U Z
Financial Planning
Concept 3 of 4 — Learn

Diversification

Spreading investments across different asset types can reduce risk without necessarily sacrificing return.

DiversificationThe practice of spreading investments across different asset classes, sectors, or geographies to reduce the impact of any single investment performing poorly. works by selecting a mix of different investments — types of assets, fund managers with complementary styles, and markets. When one asset class falls, others may hold steady or rise, smoothing out overall returns.

Figure 2. Illustrative Representation — Reducing Risk by Diversification
Individual asset classes Diversified portfolios (efficient frontier)

A well-diversified portfolio blends growth and defensive assets. As you move from conservative to aggressive, the proportion of growth assets increases — and so does the potential range of outcomes.

Did you know?

The efficient frontierA concept from modern portfolio theory showing the set of portfolios that offer the highest expected return for a given level of risk. Portfolios on the frontier are considered optimally diversified. shows that combining assets into a portfolio can achieve a better risk/return outcome than holding any single asset class alone.

C R U Z
Financial Planning
Concept 4 of 4 — Learn

The importance of time frames

Time is one of the most powerful tools available to an investor.

Annual returns from growth assets can fluctuate significantly. However, over the longer term, the expected range of returns narrows considerably. Select a portfolio below to see how the expected range narrows the longer you stay invested.

Projected range of returns % p.a. (95% confidence interval)

The longer you stay invested, the more time your portfolio has to recover from short-term downturns — and the more predictable your long-term outcomes become.

Did you know?

For a 70% growth portfolio, the range of expected annual returns narrows from a spread of 16.2% over 5 years, to just 8.1% over 20 years — the range roughly halves simply by staying invested longer.

C R U Z
Financial Planning
Gearing — What is it?

Gearing — what is it?

Gearing means using borrowed money — or a structure that behaves like borrowed money — to increase your exposure to an investment.

Most people invest expecting that markets will rise over time. Historically, that's been true — but growth can be slow, uneven, and sometimes painfully volatile. Gearing is built on a simple idea: what if we could turn the volume up on market returns?

Instead of owning $1 of shares, a geared investment might give you exposure to $1.50 or even $2.00 worth of shares for every $1 you put in. That extra exposure is borrowed — inside the investment, by the fund, or separately against an asset like your home.

🏦
Internally geared funds
The fund borrows on your behalf. No loan agreement for you to manage.
📋
Margin lending
You borrow directly, secured against your share portfolio. Margin calls can apply.
🏠
Gearing into property
Using a mortgage to purchase an investment property, controlling a large asset with a smaller deposit.

Why focus on internally geared funds? Unlike margin loans, internally geared funds do not expose you to personal margin calls. The debt is managed within the fund structure, making them a more accessible form of leverage for long-term investors.

The key principle

Gearing doesn't just amplify returns — it amplifies the importance of how returns happen. A rising market rewards gearing. A choppy, sideways market can quietly erode it. Understanding the difference is what this section is about.

C R U Z
Financial Planning
Gearing — Concept 1 of 3

Internally geared funds

An internally geared fund borrows money on behalf of its investors to increase market exposure — without you needing to manage a loan personally.

With a standard investment, every dollar you put in buys one dollar of market exposure. With an internally geared fund, the fund itself borrows additional capital — so your $1 might control $1.50 or $2.00 of assets. The borrowing happens inside the structure, invisibly to you.

This has an important advantage over other forms of gearing: because you don't personally hold the debt, you cannot receive a margin callA demand from a lender to top up your account when the value of your security falls below a threshold. Margin calls can force you to sell at the worst possible time.. The fund manages its own borrowing — falling markets result in a lower unit price, not a demand for more cash from you.

Internally geared funds also carry costs that don't always appear in the headline fee — borrowing costs are built into the fund's structure and reduce net returns. These are in addition to the management fee.

Bigger ups, bigger downs — and the maths in between

With a 1.5× geared fund, a 10% market gain becomes roughly a 15% gain. A 10% market fall becomes roughly a 15% fall. But losses are asymmetric — they always require a proportionally larger recovery:

Loss of
10%
Needs 11.1% gain to recover
Loss of
20%
Needs 25% gain to recover
Loss of
30%
Needs 43% gain to recover

Interactive: see gearing in action

Adjust the sliders to see how a geared investment compares to an ungeared one across two market moves.

Return simulator
Ungeared (1.0×)
—
$100,000 → —
Geared (1.5×)
—
$100,000 → —

Volatility decay — the silent cost. Even if the market ends up where it started, a geared investment can end up lower. The bumpier the path, the greater the drag. This effect compounds over time and is one of the key reasons that gearing works best in steadily trending markets.

C R U Z
Financial Planning
Gearing — Concept 2 of 3

Gearing and property

Property can be used as a vehicle for gearing in two distinct ways — investing directly into property, or using the equity in property you already own to invest in other assets.

For many Australians, property is the first and most familiar encounter with gearing. A mortgage is, at its core, a gearing arrangement — you control a large asset using a relatively small amount of your own money. But property-based gearing doesn't stop at buying an investment property. The equity that builds up over time can itself become a tool for further investment.

Gearing into property

Borrowing to purchase an investment property directly. You control a large asset — typically at a 4–5× leverage ratio — using a deposit and a mortgage. Returns come from rental income and capital growth, with interest costs (and losses where applicable) potentially tax-deductible.

✓ Familiar, tangible asset
✓ No margin call risk
✓ Potential negative gearing tax benefit
✗ Illiquid — cannot partially sell
✗ Concentrated single-asset risk
✗ High transaction costs
Leveraging against property

Using the equity in a property you already own as security to borrow and invest in other assets — such as shares or managed funds. As your property grows in value, the available equity grows with it, creating a borrowing capacity that can be put to work in investment markets.

✓ Unlocks capital tied up in property
✓ Interest may be tax-deductible
✓ Invest in diversified, liquid assets
✗ Property remains at risk if loan defaults
✗ Two layers of market risk (property + shares)
✗ Requires discipline and cash flow management

How equity works as a borrowing tool

Equity is the difference between what your property is worth and what you owe on it. As that gap grows — either through repayments or capital growth — lenders will generally allow you to borrow against it. This borrowed amount can then be used to invest, effectively allowing your property to do two jobs at once: providing a home or rental income, while also funding an investment portfolio.

A practical example. A property worth $800,000 with a $400,000 mortgage has $400,000 in equity. Depending on the lender and your circumstances, a portion of that equity — say $150,000 — could be accessed as an investment loan. That $150,000 might then be invested in shares or a managed fund, with the interest on the investment loan potentially tax-deductible.

Typical investment property gearing
4–5×
A 10% fall in property value can wipe out 40–50% of your equity.
Leveraging equity to invest in shares
Variable
Gearing level depends on how much equity is accessed relative to the share portfolio value.
The key difference

Gearing into property concentrates risk into a single asset in a single location. Leveraging against property to invest in shares introduces a second layer of market exposure — but allows that exposure to be spread across hundreds of companies. Both approaches carry real risk, and both require a clear understanding of what happens if values fall on either side of the equation.

Tax considerations including negative gearing and the deductibility of interest on investment loans require careful assessment of your personal circumstances. This material is general in nature — your adviser will discuss what is appropriate for you specifically.

C R U Z
Financial Planning
Gearing — Concept 3 of 3

Is gearing right for you?

Gearing is not for everyone. The potential benefits are real — but so are the risks. Understanding where you sit is essential before any gearing strategy is considered.

✓ May be suitable when
You have a long investment time horizon (7+ years)
You can tolerate larger short-term losses without reacting
Markets are generally trending upward over your holding period
Your income is stable enough to service any loan costs
You understand and accept that volatility will be amplified
You are invested in diversified, not concentrated, assets
✗ May be unsuitable when
You need stable or predictable short-term returns
You are likely to sell during a market downturn
Markets are volatile without a clear upward direction
Borrowing costs are high relative to expected returns
You have insufficient cash flow or income buffers
You are approaching or already in retirement

The three risks most people underestimate

1. Behavioural risk

This is often the biggest risk of all. When losses are amplified, the emotional pressure to sell at the worst possible time becomes much greater. A gearing strategy only delivers its potential if you remain invested through the periods of volatility it produces. Selling in a downturn turns a paper loss into a real one — and locks in the damage before any recovery can occur.

2. Volatility and uncertainty

Gearing amplifies not just returns, but the bumpiness of the journey. Markets rarely move in a straight line — they rise, fall, and move sideways. Each swing is magnified in a geared portfolio. Even when the long-term outcome is positive, the short-term experience can be deeply uncomfortable. Understanding this before committing to a geared strategy is essential.

3. Sequence risk

Poor returns early in a geared investment's life cause disproportionate damage. A geared portfolio hit hard in its first years has less capital working for it during the recovery — and catching up becomes much harder than it appears. The order in which returns arrive matters enormously, not just the average return over time.

The bottom line

Used carefully and with a clear understanding of the risks, gearing can be a powerful tool for long-term wealth creation. Used without that understanding — or abandoned at the first sign of difficulty — it can quietly undermine outcomes even when the market ultimately does what you expected.

C R U Z
Financial Planning
Gearing — Preferences

Your gearing preferences

Having worked through the concepts, please share your initial thoughts on gearing as part of your investment strategy.

Client 1
Are you comfortable with the concept of using gearing as part of your investment strategy?
Could you remain invested if a geared strategy dropped significantly in value over 12 months?
Which type of gearing feels most relevant to your situation?
Client 2
Are you comfortable with the concept of using gearing as part of your investment strategy?
Could you remain invested if a geared strategy dropped significantly in value over 12 months?
Which type of gearing feels most relevant to your situation?

This section captures initial impressions only. Your adviser will conduct a full suitability assessment before any gearing strategy is implemented. Gearing magnifies both gains and losses and may not be appropriate for all investors.

C R U Z
Financial Planning
Section 02 & 03 — Explore & Preferences

Portfolio information & preferences

Review the portfolio data and complete your risk preferences. Switch between tabs at any time.

Portfolio information
Risk preferences

Historical returns for different benchmark portfolios over the last 30 years (to 31 December 2025). Before fees, taxes and transaction costs.

Asset allocation40%50%60%70%80%90%100%
Strategic asset allocation
Australian equity16%20%24%28%32%36%40%
Int'l equity (50% hedged)24%30%36%42%48%54%60%
Australian fixed interest24%20%16%12%8%4%0%
Int'l fixed interest36%30%24%18%12%6%0%
Portfolio characteristics
Highest 1-year return18.5%20.4%22.2%24.0%26.0%29.0%32.0%
Average return7.2%7.6%8.0%8.4%8.8%9.2%9.6%
Lowest 1-year return-10.7%-10.6%-13.1%-17.6%-22.1%-26.6%-31.1%

These returns are based on index returns. Actual returns depend on investments used and personal circumstances. Investments can fall over consecutive years — a 100% growth portfolio fell by over 50% during the GFC.

Initial portfolio selection

Which portfolio do you feel is most appropriate given your attitude to risk?

Client 1
40%
Growth
50%
Growth
60%
Growth
70%
Growth
80%
Growth
90%
Growth
100%
Growth
Client 2
40%
Growth
50%
Growth
60%
Growth
70%
Growth
80%
Growth
90%
Growth
100%
Growth
Worst-case impact calculator

Enter an investment amount to see the potential dollar impact of the worst annual return for the selected portfolio.

$
—
Select a portfolio above
—
Select a portfolio above (Client 2)

Comfort with worst-case scenario

Based on the worst negative return for your selected portfolio, would you be able to stay invested if your portfolio went down by this much?

Client 1
Client 2

Revised portfolio selection

After further discussions with your adviser, and based on your time frame and capacity for risk, which portfolio do you now think is most appropriate?

Client 1
40%
Growth
50%
Growth
60%
Growth
70%
Growth
80%
Growth
90%
Growth
100%
Growth
Client 2
40%
Growth
50%
Growth
60%
Growth
70%
Growth
80%
Growth
90%
Growth
100%
Growth
C R U Z
Financial Planning
Section 03 — Ethical Preferences

Ethical & ESG preferences

Understanding your ethical preferences helps us identify the right investment approach for you.

Client 1
Would you choose a fund with up to 1% higher fees if it prioritises socially responsible investing?
Client 2
Would you choose a fund with up to 1% higher fees if it prioritises socially responsible investing?
C R U Z
Financial Planning
Section 04 — Acknowledgement

Confirm your understanding

Please confirm your understanding of the key concepts and provide your name before we finalise the workbook.

I/we confirm that I/we have an understanding of the following concepts:
✓
The relationship between risk and return
✓
The meaning of volatility in investment markets
✓
The benefits of diversification
✓
The importance of minimum time frames
Client 1 full name
Client 2 full name

Summary of responses

Portfolio preferences
Client 1 — Initial selection—
Client 1 — Stay invested at worst case?—
Client 1 — Revised selection—
Client 2 — Initial selection—
Client 2 — Stay invested at worst case?—
Client 2 — Revised selection—
Gearing preferences
Client 1 — Comfortable with gearing?—
Client 1 — Stay invested through downturn?—
Client 1 — Preferred gearing type—
Client 2 — Comfortable with gearing?—
Client 2 — Stay invested through downturn?—
Client 2 — Preferred gearing type—
Ethical preferences
Client 1 — Socially responsible investing—
Client 1 — Interested themes—
Client 1 — Companies to avoid—
Client 2 — Socially responsible investing—
Client 2 — Interested themes—
Client 2 — Companies to avoid—
Acknowledgement
Client 1—
Client 2—
Date & time—
Concepts acknowledged—

Going forward, your selected portfolio will be revisited to ensure it remains appropriate.

Cruz Financial Planning Pty Ltd AFSL: 532193 ABN: 81 618 516 135

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control of your future

Spend less time managing the details — and more time enjoying what you’ve built. At Cruz, we help you plan, protect, and grow your wealth with confidence and care.

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