How Does an Advisor Decide Upon the Best Mix of Investments for Me?

When you meet with a financial advisor, it is good to have a fairly solid understanding of the basis for the decisions he or she will try to make on your behalf. Of course, in this relationship you always have final say in terms of the investments you will be making and any decisions to go a certain route with the money you choose to place at risk. But in essence, when you hire financial advisors you are saying that you trust in their expertise and their good judgment to make wise choices on your behalf. If there is no trust between the two of you, your relationship will not last long.

Risk Tolerance an Important Issue

With all of this being said, your advisor will need to have some leeway to make choices or strong recommendations on your behalf. But in order to do this, a good advisor will first spend some time to find out a few things about you as a client. First of all, they will need to know about your tolerance for risk. If you are someone who is loose fisted and willing to gamble some with your money, this will inform the choices an investment advisor makes on where to spend your capital.

If, on the other hand, you are more tight fisted and less willing to risk losses, the financial professional you have hired to represent you will also take that into consideration. It is important either way for you to clearly communicate with your advisor about your risk tolerance and about the way you visualize your investment portfolio. If you see it as disposable capital you are willing to gamble in the pursuit of large gains, your investment representative can take that into account and design suitable strategies and accounts to leverage that desire. On the other hand, if you see your investing activities as a way to sock away nest egg money and maybe look for a modest income on it over time, this too will be thought about in some detail before any decisions are made.

Honesty Critical to Investment Strategy

The key is to be honest. And to do this, of course, you need to have your goals worked out ahead of time. If you don't have this worked out, it is possible to meet with an advisor and talk about these things. You can work with a financial professional on a fee only basis and get educated on some of the important factors you might want to spend some time thinking about. These factors could include your age and the age at which you hope to retire, your short and long term income goals, any current financial constraints limiting your investing capability, and so on. Based on the answers you provide to these and other basic questions, your financial advisor should be able to intuit the right general investment path for you as an individual.

The Right Path for Investing

Some investors are more than comfortable putting their entire fortune on the line and shooting for the stars with their long term strategy. Their feeling is that even if they suffer significant setbacks in their path to financial security, they can always make up their losses over time with an aggressive approach that allows for big gains as well as big losses. But not all folks are comfortable with this mindset. You and your financial advisor will determine the best mix of investments for you based on your financial investing capability and your investment personality.

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