The Retail Investors' Risk Tolerance: Its Impact to Investment Portfolio


  • Jasper John C. Cortez


PUP, MBA, retail investors, risk tolerance, investment portfolio


The main objective of the study was to assess the impact of retail investors’ risk tolerance to investment portfolio performance in the Philippines. The study applied the descriptive regression analysis research to determine the impact of retail investors’ risk tolerance to investment portfolio performance being practiced and observed within the Philippines. The respondents were composed of 413 retail investors or who purchase financial assets for his or her account rather than for an organization. The instrument used was a modified questionnaire. It was divided into three parts. Part 1 dealt with the profile of the respondents. Part 2 dealt with the assessment of the level of retail investors’ risk tolerance as to investment risk, risk comport and experience, speculative risk, and investment time horizon. Part 3 dealt with the investment portfolio performance satisfaction of the retail investors. This survey questionnaire was distributed and retrieved from the respondents through online. Data gathered were collected, tailed, organized, and calculated using frequency and percentage distribution weighted mean, ANOVA, T-test, and multiple regression analysis through SPSS. Based on the findings, it was concluded that majority of the retail investors’ level of risk tolerance as to aspect of investment risk, preferred a high-risk investment to achieve high return, as to aspect of risk comport and experience, retail investors are more interested in long term investment and have enough funds to bear the loss in short period of time to gain higher than inflation. As to the aspect of speculative risk, retail investors are risk averted, resulting in safe and low returns. As to aspect of investment time horizon, retail investors are open to adjusting time horizon if necessary to meet the applicable portfolio design for them. The retail investors’ risk tolerance is classified as a Moderate Growth investor values higher long-term returns and is willing to accept considerable risk. This investor is comfortable with short-term fluctuations in exchange for seeking long-term appreciation. They are also willing to endure larger short-term losses of principal in exchange for the potential of higher long-term returns. Liquidity is a secondary concern to a Moderate Growth investor. As to the level of satisfaction on retail investors’ investment portfolio base on Return on Investments/Dividends, Performance of the companies that they invested in, Alignment of the portfolio, Current market value of investment portfolio compare when they initially purchase them and level of the investment portfolio, retail investors marked as satisfied. The levels of agreement on four areas of risk tolerance are positively and significantly correlated with the investment portfolio. Multiple correlation coefficients display a moderate level of prediction of risk tolerance to the investment portfolio. Concerning the levels of agreement on the four areas of risk tolerance, overall, the regression model statistically significantly predicts the levels of satisfaction on the investment portfolio. Each of the areas under risk tolerance contributes to the model, except investment risk. Based on the findings of the study and the conclusion drawn, the researcher endorsed the following recommendations: The retail investors should choose a combination of non-correlated financial assets to reduce the overall risk in an investment portfolio and maximize the overall performance of the portfolio. The retail investors should properly assess his or her level risk tolerance because this is vital in the decision-making process. Risk tolerance guides the retail investors to determine the appropriate composition of assets in a portfolio which is optimal in terms of risk and return relative to the objective of the retail investors. It is recommended that retail investors can be active in one investment and passive on the others to balanced and maintained the level of risk tolerance required to their investment portfolio. Retail Investors should have proper training and knowledge about the fundamentals including analysis of company’s growth, the capacity to pay dividends regularly and it has announced of capital appreciation or rise in market capitalization on the company that they are planning to invest in. Retail investors also have to keep in mind their risk tolerance, which may be different from the other investors. Investors should recognize psychological bias or emotional fault by evaluating, analyzing and comparing data information from the past, current and expected performance of the companies, industries and the economy as a whole before making the investment. The retail investors’ main investment goal should be clear. Investors should Invest where their goals lie. If the retail investors’ main goal is to gain in safe and low return, then they can invest in safer, short-term investments such as bonds and mutual funds. If they interested in long-term investment, then they can invest in riskier investments such as stocks. Retail investors should create a separate account for emergency funds to relieve them from the stress of incurring a debt when the unexpected happens. There should be further studies about individuals’ risk tolerance in other industries gather different views of the study.