At the core of financial planning will be recognition of the main objectives to be achieved. These can often be expressed as a need for growth or income or even a combination of both.
Even if the objective is simply value preservation, a focus on growth will be needed to offset the effects of inflation.
Human nature may wish for maximum growth with maximum income whilst taking no risk but realistically that is not possible.
There is a relationship between risk and reward – higher potential returns will often only be achievable by taking higher risk but with volatile markets, lower results could just as easily follow. This is why it is vital that clients understand their own attitude to investment risk and their capacity to absorb losses so that any investments they make are in line with this. It is far better to have a lower income with certainty than one which may reduce or even dry up altogether.
Part of our investment advice process is to assess our client’s risk tolerance, taking into account their capacity for loss, time horizons and risk aversion to ensure they have realistic expectations of their investment returns and that the investments themselves are appropriate.