By Lorna Tan, Senior Correspondent

Higher returns equals higher risk. It's a basic fact of investing, yet working out just how much of a gamble you are willing to take with your cash is far harder to pin down.

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The other side of the coin is when investors get so caught up chasing high returns that they ignore the risk element.

So it's worth trying to understand what your personal risk profile is before investing your money.

If you have engaged an adviser, he should try to assess your risk profile before recommending a suitable investment portfolio which gives the returns you need with a level of the volatility that you are able to withstand, said chief executive Christopher Tan of wealth management firm Providend.

'Doing this well will ensure that clients will stay invested and not get out of the market unnecessarily, which is the main cause of investment failure,' he added.

'In a nutshell, it is to make the investment journey comfortable and yet achieving goals.'

But assessing a risk profile is not that simple as emotions can get in the way.

Take Ms Nancy Boon, 50, who parked her money in an 'aggressive' portfolio comprising 90 per cent equities and 10 per cent bonds.

It was only when her portfolio headed south during the downturn that she realised that she was unable to stomach the volatility.

Ms Boon's zest to achieve higher returns had clouded her judgment of her risk appetite and led her into an 'aggressive' portfolio.

The willingness to take risk is just one facet in managing risk. It is even more important to ask yourself this: Do you need to? Are you able to?

Here are three factors you should consider before investing:

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