Why take investment risk when you don’t need to?
The usual approach to the delivery of impartial independent advice is to provide what we refer to as “focused advice” A client may have an identifiable and pressing need or want.
For example, they may have come to realise that they need to save for retirement and approach us for advice about saving through some form of pension plan.
Like all competent advisers we will strive to make sure that we identify a suitable product from the whole of the market and suitable underlying investment funds that match the client’s appetite and tolerance for risk, reward and volatility.
This might best be described as “financial advice”
There is though a clear difference between “financial advice” and “financial planning”. The latter seeks to identify goals and objectives and put meaningful numbers around them.
For example “How much capital do I need to acquire in order to be able to retire at age 60?”
If we can identify the answer to this type of question it means that the financial advice we deliver is more likely to be objectives driven. As well as selecting appropriate products knowing the “number” means that we can select the most appropriate degree of risk.
At its most extreme it is possible that our client needs to take no risk at all.
Whilst this won’t be the norm, it does happen from time to time and we find ourselves strongly recommending that the client keeps their money in cash.
That may sound strange particularly in a low interest rate environment, but why take an investment risk, particularly an equity investment risk if you do not need to?
Or it may put perspective on such risk. As some clients said to me recently “knowing that we can achieve our lifetime financial goals with the assets we already have means that we can afford to take some risk with say 5% of our assets and if it goes badly wrong it doesn’t really matter”. How true?
