Risk taking in life is inevitable. When it comes to investing, there are degrees of risk-taking involved. For some, investing money is seen as a game. For others, investing provides income. Regardless of motive, wise investments involve a fair amount of analysis, calculation, speculation and risk-taking. But there are some factors to consider when taking financial risks.
The younger the client is, the more risk they can take and still recover if something goes wrong. Assuming the client doesn’t have to borrow the invested money, they would only risk losing what they had invested. If they are under the age of 40 years or less, they should be able to financially recover despite the amount invested. People who are of retirement age and feel the need to supplement their retirement will not have as much time to recover from an investment gone sour.
Lower income investors are less willing to assume high risks. The higher income investors are typically willing to accept great risk. Perhaps this is because lower income holders worked harder and over a longer period of time to gain their income and are less willing to take risks with it.
The temperament of your client will affect the types of investments they are willing to make. Different types of investments carry different degrees of risk. Even if the client is conservative, you should be able to recommend a few investment options that will suit his/her temperament.
Financial Goals Factor
Is the client interested in securing their retirement? Are they seeking to save for a child’s education? Do they want to Invest in hopes of gaining substantial profit? Understanding the client’s goals will help in selecting the right investments.
Remind the client the amount of risk they are willing to carry may potentially affect the level of return that can be expected. Encourage a degree of risk taking while respecting the client’s risk factors.