When it comes to investing for your clients retirement you need to be sure that the investment vehicles you select meet your clients’ risk temperament. When you are looking at the over all performance potential of an investment you need to consider the risk / reward factors of the product. If your client were to invest $10,000 today, which of the following risk / reward statements would fit your clients’ temperament?
Risk / Reward Potential | Scenario |
Highest Risk / Highest Reward | 20%: My investment could grow to $12,000 by the end of the year or it could decrease to $8,000. |
High Risk / High Reward | 15%: My investment could grow to $11,500 by the end of the year or it could decrease to $8,500. |
Moderate Risk / Moderate Reward | 10%: My investment could grow to $11,000 by the end of the year or it could decrease to $9,000. |
Low Risk / Low Reward | 0%: My investment will grow as a result of the current rate being credited to my account. My potential loss for the year is zero. |
As you can see from the above chart, the greater the risk your clients are willing to take with their investment dollars, the greater the reward potential. The other aspect of retirement planning you need to be aware of is that this is a long-term process. Your client cannot build their retirement in one or two years. Save early and save often.