In 2007, I was a 31 year old financial advisor. Global stock markets were crashing all around us. No one really knew why, we kept on being told that it was a blip and markets would recover only for them to crash again. Meanwhile, my clients were getting very afraid and I found my days filled with meeting clients who were worried about their pension funds. Almost all of them said “I never knew that my pension fund could fall like that.”
We all have to learn from experience and the big lesson that I learnt is don’t have clients telling you “I didn’t know” when the next crash happens. So what I have done to ensure that clients do know? I ask lots of questions about their money:
By asking questions, I can get a feel of what level of risk they want to take and what investment strategy they may be comfortable with. I know they say that past performance is no guide to future performance, but it shows us the kind of falls that any given strategy has suffered. The negative returns of 2008 is a pretty good benchmark in showing you how much you money can fall by.
We can then talk about whether you would have sleepless nights after being told that your €100,000 investment was now worth €60,000. If you will have sleepless nights, we have to reduce the risk and go through the process again, showing the potential downsides of a slightly riskier portfolio with slightly lower returns.
It is by having these conversations at the very beginning that when the next crash happens we can avoid clients saying “I didn’t know”.
If you have any questions, drop me an email at firstname.lastname@example.org