into their history, and the history of markets generally – ask about risks they have taken and how they felt about them. Determining the right risk profile is critical to minimising the risk that a client will panic and sell at the wrong time. We spend a large amount of time looking at the probabilities based on market histo- ry, which shows that shares outperform cash over time. US shares have beaten cash 86% of the time over rolling decades. For Australian shares, that figure is 90%. There are further layers within each share- market that can increase long-term return, in- cluding tilts to companies that are more profit- able, smaller and/or undervalued.

All things considered, the appropriate risk pro- file for a client is based on the following factors: • Client cashflows independent of portfolio income • Building an appropriate allocation in low risk assets • Investing the balance into shares and property “Before building a client risk profile, build an understanding of the risks your client has taken and how they felt about them.” The determination of a client risk profile begins with a pulse check for general risk-averseness. Then we consider building a buffer in lower risk, more stable investments. This is done by taking into account a client’s own cashflows, gen- erally through work income, then considerations around when they can access their money (rele- vant for superannuation given age preservation restrictions) and the history of markets. It then comes back to the client’s objectives – do they want to draw down on or retain the real value of their capital in retirement? What capi- tal expenses, such as gifts to children for house deposits or home renovations, do we need to factor in? A risk profile should cover all expected draw- ings and cashflow shortfalls in the first five years at a minimum, with lower risk assets. This buffer can be extended if the client can afford to take less risk and still meet their objectives.


For financial advisers, clients’ different learned perceptions of risk are often the biggest challenge when recommending a certain type of portfolio for wealth creation. By Phillip Gillard O ver 27 years, encompassing market events such as the Asian crisis of 1997, the Tech Wreck of 2000, the US reces- sion in 2001, the GFC, the European Debt crisis, and more recently COVID, I have seen hundreds of clients’ tolerances tested, but only one has forced the sale of their assets. The hundreds of others have taken our ad- vice and come through far better off. Education is the key to building an appropri- ate client portfolio and managing wealth, and it begins with gauging the client’s understand- ing of sharemarkets and bond markets. Delve




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