This question goes straight to the heart of market volatility and its emotional power. The description emphasizes that even investors in the bond market have gone through periods in which their portfolio would have had to wait a few years for positive returns. Stock markets have had bear market lasting for as long as 4 years. With the historical warning that there is no way of protecting against bear markets, we then ask how long they will be able to maintain their wits if their portfolio has an extended loss. We explain that we are talking in terms of 12 month periods and not the day after Black Monday. For example, if they invested their money on 1st Oct 2008, a 2 year down market would mean that the portfolio value would be less on 1st Oct 2010.
We then allow the client to choose “less than 1 year”, “between 1 and 2 years”, “between 2 and 3 years”. Note that if anything less than “between 2 and 3 years” is checked, we ask the question, “Are you prepared to substantially reduce your goals?” We explain that if he checks anything less than 2 years, our recommendation would have to be that his funds be placed in fixed-income investments (or similar financial products) with maturities of less than 2 years. Otherwise, any other combination is likely to exceed the client’s risk tolerance, which will be no good for the client.
We then allow the client to choose “less than 1 year”, “between 1 and 2 years”, “between 2 and 3 years”. Note that if anything less than “between 2 and 3 years” is checked, we ask the question, “Are you prepared to substantially reduce your goals?” We explain that if he checks anything less than 2 years, our recommendation would have to be that his funds be placed in fixed-income investments (or similar financial products) with maturities of less than 2 years. Otherwise, any other combination is likely to exceed the client’s risk tolerance, which will be no good for the client.
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