A conversation got me thinking about risk, particularly when it becomes so personal that you cannot stand back and assess the level of risk properly.
Let me explain. Last week I was talking to someone, outside of work who, when they discovered what job I did, told me a little about their situation. The story went along the lines of how they had previously had an adviser, but when the market fell they were unhappy to discover that their holdings had reduced slightly in value, not by as much as the market, but still the value overall had gone down.
They then went on to tell me that as a result, they had sold their holdings, closed the relationship with the adviser and invested the money themselves.
The interesting point for me was where they had then invested the money? The entire sum was invested in their son’s business.
Now this is where risk and personal involvement can get mixed up and I am not saying they did the wrong thing, but to take the money from an asset that reacted less than the stock market and invest it entirely into a venture that carried a much higher risk, seems wrong. I appreciate that it could have been the case of supporting their child and that the future return perhaps was certain, however at the time of the conversation there had been no return of income or capital and the person concerned was starting to wonder why their son had stopped communicating with them and there was ‘radio silence’.
Risk is such an important conversation and if the client doesn’t have an adviser, they should still consider the level of risk. Radio silence is not usually a great return for investment.
Philippa Gee is managing director at Philippa Gee Wealth Management