What a financial planner can do for you

Roy Diliberto
Philadelphia, PA

Recently, a new client who was retired told us that he wanted little or no risk in his portfolio. His portfolio was with a major brokerage firm and his broker had constructed a portfolio of bonds and no stocks. The client told us that he did not want any of his money invested in stocks because he could not handle the risk.

We counseled him that he may have meant "fluctuation," not risk. Risk, we told him, was running out of money while you are alive, and our long-term projections demonstrated that he was on target to run out of money in 12 years. We asked him if this was a risk he was willing to take, or would he be willing to accept some fluctuations and years when the portfolio lost money in order to significantly increase his chances for success.

The result was a balanced portfolio of 50 percent equities and 50 percent fixed income. Will he fret over fluctuations? In the short run, probably. In my opinion, financial advisers place too much emphasis on "risk tolerance" when portfolios are being designed for clients, and in many cases sacrifice the long-term financial welfare of their clients.

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