# In Short

In addition to objective measures of risks as I mentioned earlier, there is also an emotional side to risk, which is how much fluctuation a person can mentally handle within their portfolio.

# My Sensitivity Analysis

Whenever I meet with current or perspective clients; it is very important for me to find their current attitude towards risk. That is accomplished by giving them a test. I ask them what is their reaction if their account loses 10% of its value, 20%, 30%, etc. I then listen to what they say and watch their reaction. Some people freak out if their account loses 10% of its value; other people are calm when their account loses 50% of its value. Based on their objective needs and their emotional risk tolerance I can craft a portfolio that’s best for them.

# The Effect of Fixed Income Securities

I put fixed income securities (such as bonds) into a portfolio to reduce the magnitude of the fluctuations. Think of the ballast in a boat, which reduces how much the boat is thrown around by the waves. By manipulating the percentage of fixed income securities in a portfolio I can control the risk. In 2008, the stock market dropped by 50%. A 50% bond and 50% stock portfolio would have dropped by only 25% (the bond part isn’t moved by the stock market). Using their risk tolerance I can craft a portfolio for them that has a maximum drawdown that is within their tolerable limits.

# Conclusion

While reducing risk will reduce the potential returns of the portfolio, I think the most important thing is for the client to be comfortable.

# Fee Structure

 Rate Assets Under Management 1.44% Below \$125,000 1.00% Between \$125,000 and \$750,000 .85% Between \$750,000 and \$1,250,000 .80% Between \$1,250,000 and \$1,750,000 .75% Between \$1,750,000 and \$2,500,000 .70% Between \$2,500,000 and \$3,250,000 .65% Between \$3,250,000 and \$4,250,000 .60% Above \$4,250,000

A single rate is applied to the entire account. So a person with a \$750,000.01 account pays less than a person with a \$750,000 account. I will waive personal tax return fees for accounts over \$1 million. For accounts that are above \$5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.