lOMoARcPSD|15899195
Client analysis
Investment refers to the act of committing funds in the present moment in a particular
form with an expectation that in future, the act will gain some returns (Gillet & Salaber-Ayton,
2017). Investment has the likelihood of having a variation of the actual return deviating from the
expectation from minimum to maximum. The deviation is known as investment risk. Therefore,
any investment has risk and return (Meissner, 2018). The type of investment will determine what
the investor can earn and how much additional monetary value they can gain in form of financial
assets. Financial assets have three main characteristics namely liquidity, risk and return. Return is
the gainful reward of an investment, risk is the variation of the return from the expected while
liquidity refers to the ease of converting assets into cash.
Age of an individual is an important consideration when constructing a portfolio of an
individual (Aliu & Dehning, 2017). Different age have different investment strategies. Risk
tolerance is another important factor that needs to be consider. Both the future and current needs
of capital of an investor and the risk tolerance will determine the investment allocation of the
portfolio among various asset class. The risk/return principle trade off applies for the fact that the
higher the risk, the huge the return on the investment while lower returns is associated with
lower risk.
Determining an efficient asset allocation will require a careful analysis of the client’s
nature. Ezra, currently at the age of 26 is single and planning to get engaged and she will thus
require an engagement ring costing $5000 almost immediately. Ezra also requires $10000-
$15000 in the next period of 12-24 months that will be used to finance the wedding. Ezra is
currently employed and earns $70000 per annum that is expected to cover his normal living
expenses and taxes that is approximated to be $4800 and he expects to save $1000 per month as
, lOMoARcPSD|15899195
savings. At the current moment to date, he has saved at least $15000 using the 401K plan with a
cash savings amounting to $20000.
Risk tolerance
Ezra has a higher risk tolerance because of his young age and because he is employed,
investment is not a requirement that it becomes his income source (Gillet & Salaber-Ayton,
2017). The tolerance level of Ezra is moderate to high as indicated by his plan on losing at least
30-40% of capital invested if higher returns are offered. This means that based on the investment
he has made, he expects a higher returns. Ezra is not planning for his risk tolerance to adjust after
getting married. The liquidity of Ezra is low due to the higher amount of cash he saves and the
fact that he does not have so much expense to cover. Therefore, we conclude that Ezra should be
classified under the capital and growth preservation category. Ezra is thus classified under the
asset preservation category since he is willing to increase his bank savings account just as a
precaution of what may happen at his place of work. He is not risk taker since he does not have
any plan of investing in equities and stock which are mostly growth investments.
Jacob and Rachael are nearing age of retirement and they are probably more concerned
about how to protect their asset and getting incomes from their investments in manner that is tax
efficient. Rachael and Jacob are aged 52 and 53 and married with four children. The have a
responsibility of paying for their two children college fees and also the two high school kids
expected to join college whose college fees are expected to be catered for. The parents still live
below their means despite doing relatively better for themselves and earning about $190000 per
annum. The college expenses for their children need to be covered out of their pocket and they
won’t have enough that they could save for themselves in the next 6-8 years. Based on the above
information, the clients can thus be classified as having moderate risk tolerance. The clients have
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Client analysis
Investment refers to the act of committing funds in the present moment in a particular
form with an expectation that in future, the act will gain some returns (Gillet & Salaber-Ayton,
2017). Investment has the likelihood of having a variation of the actual return deviating from the
expectation from minimum to maximum. The deviation is known as investment risk. Therefore,
any investment has risk and return (Meissner, 2018). The type of investment will determine what
the investor can earn and how much additional monetary value they can gain in form of financial
assets. Financial assets have three main characteristics namely liquidity, risk and return. Return is
the gainful reward of an investment, risk is the variation of the return from the expected while
liquidity refers to the ease of converting assets into cash.
Age of an individual is an important consideration when constructing a portfolio of an
individual (Aliu & Dehning, 2017). Different age have different investment strategies. Risk
tolerance is another important factor that needs to be consider. Both the future and current needs
of capital of an investor and the risk tolerance will determine the investment allocation of the
portfolio among various asset class. The risk/return principle trade off applies for the fact that the
higher the risk, the huge the return on the investment while lower returns is associated with
lower risk.
Determining an efficient asset allocation will require a careful analysis of the client’s
nature. Ezra, currently at the age of 26 is single and planning to get engaged and she will thus
require an engagement ring costing $5000 almost immediately. Ezra also requires $10000-
$15000 in the next period of 12-24 months that will be used to finance the wedding. Ezra is
currently employed and earns $70000 per annum that is expected to cover his normal living
expenses and taxes that is approximated to be $4800 and he expects to save $1000 per month as
, lOMoARcPSD|15899195
savings. At the current moment to date, he has saved at least $15000 using the 401K plan with a
cash savings amounting to $20000.
Risk tolerance
Ezra has a higher risk tolerance because of his young age and because he is employed,
investment is not a requirement that it becomes his income source (Gillet & Salaber-Ayton,
2017). The tolerance level of Ezra is moderate to high as indicated by his plan on losing at least
30-40% of capital invested if higher returns are offered. This means that based on the investment
he has made, he expects a higher returns. Ezra is not planning for his risk tolerance to adjust after
getting married. The liquidity of Ezra is low due to the higher amount of cash he saves and the
fact that he does not have so much expense to cover. Therefore, we conclude that Ezra should be
classified under the capital and growth preservation category. Ezra is thus classified under the
asset preservation category since he is willing to increase his bank savings account just as a
precaution of what may happen at his place of work. He is not risk taker since he does not have
any plan of investing in equities and stock which are mostly growth investments.
Jacob and Rachael are nearing age of retirement and they are probably more concerned
about how to protect their asset and getting incomes from their investments in manner that is tax
efficient. Rachael and Jacob are aged 52 and 53 and married with four children. The have a
responsibility of paying for their two children college fees and also the two high school kids
expected to join college whose college fees are expected to be catered for. The parents still live
below their means despite doing relatively better for themselves and earning about $190000 per
annum. The college expenses for their children need to be covered out of their pocket and they
won’t have enough that they could save for themselves in the next 6-8 years. Based on the above
information, the clients can thus be classified as having moderate risk tolerance. The clients have
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