Contemplating your next move?
Robert, 61, had $2 million in investable assets and was not sure he needed a financial advisor. He was well educated and used to making his own decisions. He was also nervous about the market and extremely cautious with his investing. Charles explained to Robert that he does not utilize market timing but rather manages by objective. That is, he aims to achieve in Internal Rate or Return (IRR) with the least amount of risk while still meeting the client’s individual goals.
Charles tested Robert’s risk tolerance and discovered that Robert had a low risk tolerance. He then calculated the IRR that Robert would need to maintain his lifestyle in retirement without encroaching on his capital and found it to be 7.78%. Rather than take a more aggressive approach, Charles recommended a conservative blend of financial instruments with a high probability of achieving a 7-8% return. When the markets were up by 20-40%, Robert’s portfolio was producing approximately 8% as planned and Robert wondered whether he had made a serious mistake. However, when the market’s bubble burst and Robert’s friends were hit with huge losses, Robert’s investments continued to produce the 7-8% return he needed and his principal remained intact. Needless to say, Robert is happy today and glad he remained committed to his original plan.