SEARCH FOR YIELDS Issue 7, November 20th
Clients risk appetite should determine how advisors build their portfolios
The concept of risk appetite is very much relevant for financial advisors when they advise their clients on investments. Typically, investments are structured to meet clients� financial goals such as buying a house, children education, retirement etc. A client's risk appetite that is gauged through a risk metric form or interview will determine the actual investments for the client.
Clients with very low risk appetite or risk-taking ability may prefer certainty of cash flows, such as in bonds, to uncertainty of cash flows, such as in equity. They may be, to a certain extent, return agnostic.
Bonds can help clients with low risk appetite or low risk taking ability to meet their financial goals
Bonds come literally in various shapes and sizes that can be moulded in a portfolio. Bonds have different interest rates and varying maturity periods that can even extend to 30 years plus. Bonds can easily fit into a time structured portfolio that will help with the cash flows necessary to meet a client's financial goals.
For example, if a near term goal in 5 years, the client wants to buy a house, a 5 year maturity bond will be a good investment to make, as the bond matures in 5 years and the client gets the cash flows necessary to make a down payment for the house. Similarly, financial goals starting from even 1 year and going up all the way to 30 years can be met with bond investments.
�Selection of bonds is extremely important for a bond portfolio
Bonds , while helping clients meet financial goals, carry different levels of risk. A client is not expected to liquidate the bond before maturity though there may be times when it has to be sold. Hence the bond must offer safety of capital, adequate returns to beat inflation and also be liquid in case of any unforeseen need to sell the bond.
Financial advisors will have to carefully build a bond portfolio for clients. A good bond portfolio can provide both financial stability for clients as well as a peace of mind for advisors as well as clients.
INRBonds offers financial advisors a Bond Advisor Certification Program, which will enable them to help clients achieve their financial goals through bond investments
Information herein is believed to be reliable but Arjun Parthasarathy Editor: INRBONDS.com does not warrant its completeness or accuracy. Opinions and estimates are subject to change without notice. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The financial markets are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved. Unauthorized copying, distribution or sale of this publication is strictly prohibited. The author(s) of the content published in the site INRBONDS.com may or may not have investments in the assets discussed in the pages/posts.
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