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Essay example - Financial and Investment Opportunity

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Finance & Accounting
Pages 11 (2761 words)
Although many investors are familiar with the risk-reward concept, which equate high risk of a given investment to high return, many do not usually understand how to establish the height of risk their portfolios should endure. …

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When assessing investment suitability, most advisers and investment managers take into consideration customer’s attitude to risk, but they fail to account appropriately for their capacity for loss. Therefore, this calls for financial consultants to assess the clients’ attitude towards risks during the evaluation of investments process using the most suitable tools.
While assessing the individual’s attitude towards risks, the use of gender, age, parental background and even height is used to measure the willingness to take risks in general (Newell, Chan & Goodridge 2011, p 210-19). To better understand the attitude to risk by investors, data from previous research as well as field experiment, are used to assess these attitudes. The previous review is done in order to know the gaps to be filled while determining the attitudes towards risks. A random sample of clients that come to the bank as well as online banking clients are requested to fill in questionnaires. In this quest, to fill gaps, there are things that need to be taken in to consideration as the process of assessment is taking place.
According to Mowbray (2011), gaps are bridged by focusing on some key themes such as the risk that a client is willing and able to tolerate, the client’s capacity for loss and identifying clients who are neither willing nor able to accept the risk of loss. Apart from that, the client’s requirements must be considered, and this involves collecting of information that includes the client’s investment knowledge, risk tolerance, investment horizon and the capacity to make regular contributions and meet extra collateral requirements where appropriate.
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