Client Analysis of the Investment Plan
Client Analysis of the Investment Plan
Risk Tolerance
Client 1 is risk-tolerant to a modest level. This is evidenced by the amount of money he is willing to lose in the investment of the project("How Much Risk Should You Take with Your Investments?" 2011). First, he says that he understands that he is young, therefore the need to be willing to risk as much as possible. That indicates he is willing to take risks in business. However, he also says that he is willing to lose about 30% to 40% of the initial investment if the return is commensurate, showing that he is willing to risk but not to a greatextent. He is modestly risk-tolerant.
Client 2, on the other hand, is risk-tolerant to a great extent. This is showcased by their ability to risk their different portfolios to a greater extent over the years, with a 70% to 75% equity on their portfolio. Risking investment to this extent shows that they are willing to take the risks that business comes with.
Return Objectives
The return objectives for client 1 is that he is willing to risk capital in investment as long as the return of the investment is commensurate to the lost invested capital. He says that risks are normal, and he expects them because he is young and understands the need to risk more in business. However, he also says that he is willing to lose invested capital as long as the returns are also equal to the losses experienced.
On the contrary, the return objectives for client 2 is that they are willing to take risks and even lose in their portfolios but not a great extent. They say that since they are old, they need to start planning for the retirement of their portfolios in the next 13 years. For that, the aggressiveness that had characterized their initial years in business is somehow reduced. However, they also understand the need to be aggressive enough to generate more profits. What they are also aware of is that they cannot take big hits in their investments. They need good returns with minimal losses, if any.
Liquidity Objectives
Client 1 is committed to liquidity objectives, which entail being committed to the cash outflows in his quest to become a top investor("Liquidity Management in Business and Investing," 2014). This is evidenced when he received the windfall from his investments. He then came for advice on how he can invest in a business using the amount he received. That shows that he is willing to inject the cash receive back into a business.
Client 2 is highly adhesive to the liquidity objectives, especially as they prepare to retire their portfolios. This is evident because they say that they are preparing to retire their portfolios in the next 13 years. That means they are preparing to liquidate the portfolios while minimizing reinjecting back the cash into the business.
Brief investment statement
Client 1 is interested more in the income that his business generates. This is evident because he says that he is willing to take risks in as long as the risk is commensurate to the amount that is generated too. That shows he is keen on ensuring that the business does not take big hits while also generating enough income.
Client 2 is more interested in capital preservation. The couple is approaching retirement, and they are preparing to retire their portfolios too. That means that they intend to liquidate the business partially over the years until retirement. Capital preservation is their main intention as they approach retirement.
Reference list
How Much Risk Should You Take with Your Investments? (2011, August 15). Retrieved from https://www.thebalance.com/what-is-risk-tolerance-2466649
Liquidity Management in Business and Investing. (2014, December 27). Retrieved from https://www.investopedia.com/ask/answers/122714/what-liquidity-management.asp
