Investment risk is probably the most important area of clarification, between a financial planner and client.
I know there are many other areas, which seem important, and they are, I am not reducing their importance, but if there is a single area of potential dissatisfaction for a client, then investment risk is the one!
You see, so many advisers and clients refer to investment risk in relative terms; by that I mean ‘I’m low risk’ Low risk relative to what? ‘I’m medium risk’ Relative to what?
What you define as low risk may be different to what I feel is low risk, and therefore if you ask for low risk and I give you my low risk, we could be in trouble!
That’s why it’s important to define risk in absolute terms, so there is less or hopefully no confusion.
