HOW I MANAGE YOUR INVESTMENT? < Part 2 >

From article in Part 1, during the preliminary discussion with my client, all gathered information

will tell me about my client's Risk Tolerance. In line with this, my selection process of assets must

reflect the investor's willingness in accepting degree of volatility. Suppose, my client is a risk

averse type but willing to embrace a bit of risk to add value to his/her investment. This client can

be described as one who fits the moderate profile type as opposed to aggressive and passive

types.

There is an understanding among many seasonal investors or institutional investors about the

kind of return expected by aggressive, moderate and conservative investors. Many research

and studies confirms to this belief. What are this believes? It is believed that on the average the

conservative profiled investors anticipates a return in the band of 3% to 5%. As a result of their

status quo, they abhor volatility in market. The aggressive types, on the other hand prefers

higher return, therefore on the average their anticipated return would be in the band of 8% to

12%, not limited. As for the moderate types, average band range is 5% to 8%.

Okay, based on this findings i then apply it in my work of constructing the Expected Return

table. If my client is of the moderate profiled type, i will choose unit trust funds that

accommodate their ability to accept extension in volatility. There must be a match-match

situation between the fund's volatility and client's risk acceptance. Here, i used the model based

on exposure or weightage based model in constructing the table.

Assuming the moderate type client invests RM50000. The expected return table will look 

like below.

I will advise my client that his/her anticipation of return from investment is benchmarked around
6.20% with upper limit 8.00% and lower limit 5.00%.

This is the end of Part 2 and in my next article i will then go  on to structure the asset allocation
table which includes types of funds that i would select. See you there!