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How do financial investors choose the best investments for their clients?

By on September 22, 2015

Financial investors are accountable to you the client. Contrary to popular belief, the goal isn’t to earn as much money as possible. With a greater chance of wealth comes a greater chance of failure, and this isn’t what most clients want. They care as much about capital preservation as they do about inflating their overall wealth.

The method of determining the best financial investment for the individual is actually quite intricate. We’re going to show you the three key steps financial investors take to determine the best client investment.

Risk Tolerance

The assessment of risk is essential in any area of investing. A failure to take into account risk tolerance could make the client feel uncomfortable. Ultimately, they need to have confidence in the investment.

Risk tolerance consists of three key areas:

  • Retirement. Does the client have time to recover from an investment that goes south?
  • Wealth. How much wealth is the client willing to risk?
  • Income. In the event something goes drastically wrong, does the client have enough income to restart investing for the future?

The Goals of the Client

The goals of the individual are important. Not everyone wants to attempt tripling investments. Clients have different motivations for investing.

For example, they may want to invest over the next twenty years for their child’s college tuition. Or they may want to purchase a house or other major asset.

These scenarios require a radically different approach to a client whose goal is to increase their wealth exponentially. Some clients also prefer to increase their wealth, whilst at the same time emphasizing wealth preservation.

Creation of a Risk Profile

A risk profile involves integrating these two points together. It all starts with the client assessing what they want to do. Next, comes the element of risk. Would the client prefer to take more risk for greater gains now?

Understand that this is never an exact science. Two financial investors may opt for slightly different recommendations. There’s no right or wrong answer and there are no certain investments.

Risk profiles are popular these days because they help to meet the client’s expectations better. A client who expresses how much risk he wants to take is less likely to be upset if an investment goes wrong.

The Investment Profile

Finally, once the investor makes a decision as to what ‘category’ clients fall into, using their risk profile, he will select a portfolio for them.

It’s inefficient to build a whole portfolio from scratch. Most financial investment firms will place clients into a pre-built portfolio that meets their needs, as well as clients similar to them. This is more efficient and it’s less work.

Of course, it’s possible to ask a financial investor to build one from scratch. This tends to cost extra, and it isn’t recommendable unless you’re sure about what you’re doing.
As you can see, this is a more complex process than many people think. Make sure you choose a reputable financial investor when you make your next investment!

Author Bio:                   

Zoe Lawford studied marketing management and currently works as an online marketing associate for Blossom Wealth Management. She has been involved in a lot of research in the areas of wealth and investment planning and likes to share her experiences on various platforms. Email her at Zoe@blossomwm.com or visit blossomwm.com if you’d like to learn about wealth management.

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