 The financial adviser will determine what percentage of
the available income is necessary--when taking into
account the tax liabilities, expected inflation and
projected return on investment--in order to meet a
minimum balance by the client's target age of
retirement. This is a fairly straightforward
calculation, and there exist many automated tools that
do this. The financial adviser's greatest contribution
will be that of asset allocation: determining how to
maximize the return on investment while satisfying the
client's risk tolerance.Financial advisers may help
their clients invest for both long and short term goals.
It is the financial adviser's duty to determine the
clients' goals and risk tolerance and then to recommend
appropriate investments. Generally, a longer time
horizon allows for the advisor to recommend more
volatile investments with potentially greater risks and
rewards. Such investments include direct investment in
stocks or through collective investment schemes such as
mutual funds and unit investment trusts/unit trusts.
If the client has shorter term goals, the adviser
should recommend less volatile investments with shorter
time spans. Such investments could include cash,
Certificates of Deposit, and short term bonds. While
these types of investment generally have lower returns
there is less volatility and there is less likelihood of
losing principal. Although short-term investments can
guard against loss of capital, their value can be eroded
by inflation over longer periods of time.
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