Date: Sat, 5 Aug 2006 21:52:42 -0500
From: "dapperdobbs" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Risk Tolerance vs. investment objectives
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There are many mysteries in the universes of man .... That is, as you
pointed out, how personal perception in the absence of adequate
understanding can lead to answers that don't make a lot of sense.

Quick answer: yes. A conservative portfolio seems to be appropriate.
The feelings (disposition) of the client may well be more important
that her returns - if she feels comfortable, she may stick with you
even though it is not an economically "best" decision. I would guess
that's a question of balancing ethics - how effective would you be in
informing her more completely - but it IS her money, and her level of
comfort is important to her. Somehow I doubt she'd be made comfortable
with a "moderate" when a "conservative" worked.

However ...

A) If the expected returns are 7% - 9% why not mix up 33% bonds with
33% conservative and 33% moderate. The client might be more tolerant of
fluctuations that were "segregated" That's just a shorthand fix - if
you get on top of all the numbers, I'm sure you can come up with
combinations that will work.

B) If you got lucky and the portfolio appreciated before declining, you
might explain that her net value increased. The length of time she has
is important for average returns. Determine her requirements for
satisfaction and use surplus to "speculate" with moderate growth,
keeping a sharp eye on the possible drawdown of the surplus.

C) I'm a nut-case who believe the safest investments are those that are
most likely to grow rapidly. Just down-home USA, y'all know?

I mistrust computerized surveys - actually, I believe those are a
mathematical idiocy in the path of trying to dope out what's going on.
The best way to ask is to simply ask and observe, and allow the
surveyee to give you their thoughts. (E.g. GM survey many years ago
with over forty questions about preferences - not one of which covered
what I most wanted in a car.)