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Investment Process

1. Risk Capacity

Investors are entitled to a level of return that is commensurate with their risk capacity. Therefore, the importance of the measurement of risk capacity in the investment process cannot be understated.  For example, if an investor selects a portfolio that is overly conservative, the danger is that when the stock market starts to rise rapidly he adopts a more aggressive stance and increases his risk exposure beyond his risk capacity.  At this level, the higher volatility ultimately has the effect of scaring him back to a more conservative risk exposure.

The five risk dimensions of individual risk capacity are:

i. Time Horizon and Liquidity Needs

This dimension estimates how rapidly investors may need to withdraw money from their investments.  The longer an investor holds onto a risky asset with at least a twenty year record of associated returns, the less chance there is of obtaining poor cumulative returns.

ii. Attitude to Risk

This dimension estimates aversion or attraction to risk – defined as “the possibility of loss” – and addresses an investor’s ability to withstand the fluctuations in the value of any investment that is subject to risk. The longer an investor holds on to a risky asset with at least a twenty year record of associated returns, the less chance there is of obtaining poor cumulative returns.

iii. Net Worth

This dimension estimates the investor’s capacity to take various levels of risk. A high net worth provides a cushion for the uncertainty of future cash needs.  Because life is uncertain we can never be certain of tomorrow’s requirements.  However, the more assets an investor has in reserve, the higher his capacity for risk.

iv. Income and Savings Rate

This dimension estimates the investor’s excess of current income and ability to add to savings. The higher the score, the more likely it is that the investor will have a higher discretionary income available for investment and also a greater cushion against future emergency cash requirements.

v. Investment Knowledge

This dimension estimates the investor’s knowledge about investing in general and, more specifically, the relationship between risk, return and time.


2. Our Risk Capacity Categories for Individual Investors

We have 18 different portfolios available and would recommend the best fit after discussion of your risk profile. We subscribe to the view promoted by some behavioural finance methodologies that an investor’s tolerance for high risk in one area of their life (e.g. “likes free-fall parachuting”) does not necessarily translate into an acceptance of high risk for their investment portfolio. For example, our parachutist might feel more able to enjoy his thrills knowing that his investments are safe and his family secure should the worst befall him.

Whilst we endeavour to guide you to the most appropriate portfolio, the ultimate test will be your acceptance of the volatility you will experience in real life.


3. Our nine step transition process to a successful investment experience

We follow proven scientific methods of successful long term investing, providing our clients with the means to meet their investment objectives.  The key steps in our process are as follows:

Step 1: Investment Planning Assumptions

The first step of our process is to ensure that you are happy with The Swindells Financial Planning Investment Process and the investment philosophies, strategies and processes outlined.

Step 2: Risk modelling

Using sophisticated computer modelling, we assess your attitude to risk allowing us to accurately reflect your investment needs in your portfolio construction.

Step 3: Asset Allocation

Once your risk modelling is complete, we formulate an asset allocation strategy for your investments, optimising the balance of risks and expected returns.

Step 4: Assess Your Current Situation

Having assessed your risk profile and determined your optimum asset allocation, we then compare this with your current investments, showing any disparity between your current and optimum position.  Our objective is to determine whether you have received a return on your investments that was commensurate with your exposure to risk.

Step 5: Other Investment Criteria

We then consider other aspects of your current investments including flexibility, fund choice, performance and charges.

Step 6: Transfer Analysis

Having defined your optimum investment strategy, should your existing investments not match this strategy, we will analyse the effect of transferring your investments to a more suitable environment.

Step 7: Transfer Administration

Should any transfer be recommended, we will manage the smooth transition from the existing to new providers.

Step 8: Monitoring & Reporting

We will report the progress of your investments on an annual basis…, recommending switches or rebalancing where necessary and providing relevant market commentary. 

Step 9: Annual Review

We will re-test the your attitude to risk on an annual basis to ensure that the asset allocation remains in line with your risk capacity and where changes in circumstances have had an impact on this, adjust the portfolio as necessary.


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I want to thank you for your time, input and advice over the years over my pension and retirement.  I enjoyed working with you and would not hesitate to recommend you and your services.

Bill Swan, Ontario, Canada

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