The investment calculator shows how capital could develop over time at different model rates of return. Before the calculation, though, you have to pick one of the options: conservative, balanced, dynamic or ESG dynamic.
Which one? Do not start with the percentage of expected return. What matters more is what the money is for, when you will need it and how much fluctuation in its value you are able to accept.
Start with the goal, not with the highest percentage
At first sight it can be tempting to pick the option with the highest model return. But a higher expected return also comes with higher risk and usually with more pronounced fluctuation in value.
So start with a question: when and what will I need this money for?
Capital that is meant to work for another twenty years is a different matter from money set aside to buy a property in three years.
The investment horizon is one of the basic parameters when a portfolio is being set up. The Czech National Bank points out that a longer horizon lets an investor tolerate fluctuations in value along the way. An early withdrawal, on the other hand, can mean having to sell at an inconvenient time.
Conservative profile: when stability matters more
The conservative profile in the calculator works with a model return of 3.5% a year.
It may suit a situation where the capital has a shorter horizon, or where limiting fluctuation matters more to the investor than a higher growth potential.
Typically this is the part of the wealth you already know you will need in the foreseeable future, or money that is meant to play a steadier role in the overall structure.
Conservative does not mean without risk. The value can change here too. What differs above all is the balance between expected return, risk and availability of the money.
Balanced profile: between stability and growth
The balanced profile in the calculator works with a model return of 5.5% a year.
It combines steadier and growth components of a portfolio. It may therefore suit capital with a longer horizon, where the investor wants to use the potential of growth assets but does not want to accept fluctuation as pronounced as in a dynamic strategy.
What decides is not the length of the investment alone. It also matters how important this money is for your other plans and what decline in value you are able to bear, financially and psychologically.
Dynamic profile: for long-term capital
The dynamic profile works with a model return of 7.5% a year in the calculator and assumes a higher weight of growth assets.
It may suit long-term capital where the investor can accept more pronounced declines along the way and does not need the money in the near future.
A long horizon gives the portfolio more time to pass through the different phases of the economic and market cycle. Even that, though, does not mean a dynamic strategy automatically suits every investor.
Beyond the horizon, what matters is the ability to bear a decline in value, tolerance of risk, the financial situation and the role of that money in the wealth as a whole.
What does the ESG dynamic profile mean?
The ESG dynamic profile in the calculator also works with a model return of 7.5% a year. In terms of the relationship between expected return and fluctuation it therefore remains a dynamic option.
ESG here represents a further criterion in selecting investments. Alongside financial characteristics, it also takes environmental, social and governance criteria into account.
So it is not another step on the scale from conservative to dynamic. It is a way of bringing preferences about sustainability into investment decisions.
One estate does not have to have one profile
This is the substantial difference between a calculator and real wealth management.
Imagine an investor with 30 million crowns available. Five million are meant for a property within a few years, part of the wealth is to fund their standard of living over the long term, and the rest they want to pass on to their children one day.
Although all of the money belongs to one person, it does not have the same purpose or the same horizon.
It therefore does not automatically make sense to expose the whole estate to the same level of risk. Individual parts of the portfolio can follow different strategies according to the role they are meant to play.
With larger wealth, dividing capital by its purpose is often more useful than looking for a single investment profile for everything.
So what should you choose in the calculator?
For an indicative calculation, ask yourself three questions:
- When will I need this money?
- What is it meant for?
- How large a decline in its value can I accept without having to change my plan?
Based on the answers, pick the option that fits your situation best and look at how the capital could develop over time under those assumptions.
The result of the calculator is not a proposal for a specific portfolio, nor a determination of your actual investment profile. That comes from a more detailed assessment of your goals, your financial situation, your ability to bear a decline in value, your tolerance of risk, your knowledge and your experience.
At Melior Invest we also do not look at an individual investment in isolation. We are interested in the role a particular part of the capital plays in the wealth as a whole and what you expect from it in five, ten or twenty years.
The calculator shows you a model. With us you can set up how your wealth should actually work.
