Risk Reduction Strategies For Retail Investors

Investments are of two types – risky and less risky. As a financial advisor, you deal with all types of clients. The first step in your client relationship is to ascertain the type of risk your client can digest.

Hence, a risk profiling exercise should be carried out before planning any investments. Once you are aware about your client’s risk appetite, you can tailor a portfolio to suit their need.

At times, you might be working with a client who is extremely risk averse, but also needs appreciable returns of investments. They panic during volatile times, and are unnecessarily conservative even in the face of a bull run. For such clients, you need to formulate certain risk reduction strategies that they will be comfortable with.

Here are some suggestions to get you started:

  1. Timing The Stock Market

Never try to time the market. At least not when acting on behalf of a retail investor. They generally do not have the appetite for such risk. Also, when you are investing for the long-term, timing the market hardly helps. Instead, try to spread out the investments by recommending systematic investment plans from mutual funds.

  1. Staying In Touch And Reviewing Portfolios Regularly

This is the golden rule for investments. Even the best of the fund managers review their portfolio regularly (read: daily). If you are assisting a retail investor, you need to set up a review calendar, with review dates not more than 6 months apart. Examine the performance of the portfolio vis-à-vis the benchmarks and make changes. Talk to your clients regularly. Nothing comforts retail investors more than the fact that you are ‘in touch’.

  1. Portfolio Diversification

Theoretically, risks are of various types. For a retail investor, inflation and liquidity are the primary ones that you need to help them hedge. Based on the risk appetite, ensure that you diversify the portfolio across investments that offer a healthy cushion against inflation. Balanced mutual funds are an ideal mode to achieve this. Based on the investable corpus, and liquidity mandates, diversification across more asset classes can be considered.

  1. Knowing Your Options Well

Before you recommend investment ideas, do your research. Ensure that you have a good grasp about every aspect related to the product or investment theme you are suggesting  your client. This way, you will be able to find a perfect fit for your client, and be able to pitch confidently.

  1. Staying Away From ‘Expert Tips’

When retail investors act on their own accord, they are often lured by unsolicited information in the form of expert tips through various platforms. Educate your clients about the dangers of following these ‘get-rich-quick’ ideas so that they are not taking up unnecessary risks.

  1. Real-Time tracking for Clients

You manage multiple portfolios and deal with various clients. It is not always possible to stay in touch with all the clients, or to stay abreast of the performance of their portfolio. You invariably miss the key developments that might affect the client. The need of the hour is to have a macro view for all your client’s investments on a single platform.

This is where Edelweisspartners offers you just the tool you need. Through a single web/ mobile platform you can access in-depth information, analyses, and updates for multiple client portfolios. You can not only track but also execute and suggest deals for clients.

What’s more, you can also offer this platform to your clients to build engagement and real-time tracking.

Recent Posts