Q19: How often to do you review your investment?

The first part of the question is designed to prepare client’s expectation realistically, and emphasize the benefit of the quarterly review. Client can monitor daily or weekly, the FP could schedule a formal review quarterly. The quarterly review is to objectively compare the goal with current portfolio performance.

The second part of the question is designed to help client sees the bear market in an objective perspective. In an unplanned situation, client will be fearful in a bear market. The purpose of this question is to allow FP to help link the client’s goal to the market performance.

If the current timeline to planned time horizon is still very far, a re-balancing decision could be triggered to expose more onto the equity portfolio.

If the current timeline to planned time horizon is very near, then a re-balancing decision could be triggered to expose more onto the fixed-income portfolio.

Q18: I would rather be out of the market....

This question is designed to address market timing issue. We discourage market timing and we require our clients to acknowledge that they are prepared to accept the reality that they cannot market-time. This question simply points out that if the client wishes to participate in the positive periods of the market he must be prepared to also accept the down periods. Should a client ever indicate that he cannot live with the volatility of the equity market, we explain that the only alternative is an all deposits portfolio which, in all likelihood, will not provide a return adequate to meet his long-term goals.

Q17: "If my portfolio produces a long term return of ...I am prepared to live with a time recovery of...."

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.

Q16: Investment "risk" means different things to different people.

This question is designed to educate clients regarding the many dimensions of risk, including the risk of losing their standard of living or not meeting their goals, and the risk of not sleeping well (i.e. market volatility). The 1st two items address the issue of returns. We emphasize that their goals are accomplished by earning an appropriate real rate of return, not by earning an arbitrary fixed target return. Item 3 helps clarify for the client that short term volatility is a reality that he has to live with.

Q15: Up to what % of this portfolio can be invested in long term?

This question asks the same thing as Q14 in a different way. It is purposely designed in this way. During the client interview or review process, this question is used to educate, remind and prepare client for the need to see through the financial goal time horizon.

To the FP, this question also serves as a comforting reminder in future. When the market has turn nasty, FP will pull out this questionnaire and flip to this question to remind the client that he need not panic. His portfolio is designed with the knowledge that they would not be forced to liquidate at the bottom.

Q14: What % of your investment are you likely to need within 5 years?

You will note the similarities between this question with Q7 and Q8. There is no mistake in this. This is to communicate the importance of adopting a reasonable time horizon for investment. (In this case is 5 years)

Q13: Asset class constraints

This question is designed to allow client to air out any bad experience on any asset class. This allows the FP to exercise judgment in planning an asset allocation plan for the client. For example, if the client has bad experience in “MiniBond” (a type of structured product), FP should take the time to explain the difference between bond fund and “minibond”; otherwise, the bond fund should be put on hold until the client is comfortable with them.

FP should not force the product into the portfolio which client has indicated “to be avoided”.