What would you advise w/ this investment?

Suppose that you have a client that is very risk adverse. He is 50 years old and has a 20+ year investment time horizon.





Despite his risk aversion, he wants to generate a rate of return greater than that of the current money market. His existing portfolio is invested 100% in bonds.





Assuming that this is all that you know about the client, would you advise that he add equities to the portfolio? Why? How much?


What would you advise w/ this investment?
I would discuss with him the option of committing 20% of his portfolio to solid dividend-paying stocks. If he focuses on the dividend yield, he won't worry so much about daily fluctuations in stock prices. The beauty of starting such a plan now is that he will probably also get fine capital appreciation when the economy recovers, as it certainly will.





The stock market begins recovering at about the midpoint of a recession, NOT at the end, as many believe. By the time the news turns uniformly good, the market will be significantly higher. For those interested in an equity portfolio, these are wonderful times.





So, to your client, point out the idea that high-dividend yield stocks can be a relatively safe way to outpace the money market, and that buying stocks in a recession is a good idea because prices are cheap and they eventually recover.





Among many good candidates for your client, suggest that he look at Pfizer (PFE). It has a current yield of 7.6% and a P/E of just 11. The risk/reward ratio is favorable.





Good luck!What would you advise w/ this investment?
If very risk adverse I would recommend a bond ladder buying a ladder of maturities in bonds on the secondary market to increase yield and keep risk very low.





A high risk aversion is generally a result of lack of knowledge. A percentage of stocks can be managed to be less risky with diversification and proper re-balancing which by nature sells high and buys low.





But most people have trouble with the concept and if they are okay with a lower return in order to sleep at night, that has a different value to them.





Everybody wants the impossible goal of higher return with no risk. I simply tell them:





No!





Impossible!





Risk and reward are proportional and you are only paid a higher return for taking more risk.





If they want a high return with no risk they need to find a goose that lays golden eggs. LOL.





Then I tell them THEY have to decide on their risk tolerance to get a higher return. They don't get to decide on a higher return and then choose a lower risk. It is either/or.





But, an adviser can show them how risk can be mitigated with diversification, re-balancing, and dollar cost averaging in to other investments. That is the benefit of an adviser.





A higher return but no higher risk is a dream. Money doesn't work that way.





Now, where is that goose?
He should wait until the current recession ends in a year or more since stocks won't go up during the worst recession since 1929.


If he invests some in stocks after the recession ends, his stock portfolio should be calculated somewhat like the usual recommended method of using a precentage equal to either 100 - your age or 110 minus your age.





If very risk adverse, I would make it an even smaller percentage.
You have already said your client is very risk adverse. Anything you recommend for him that involves risk, he will be unhappy with.





One thing you could recommend, that this client would understand, just by it's logic, is to invest in an index fund. After all, the stock market is at a very low point, so therefore, these funds have nowhere to go, but basically up............over time.
Risk aversion is impossible to quantify without some 1on1 discussions. Risk is different form volatility. I am building a portfolio of moderate yield stocks for my sister. It COULD go down, but there are some very high yields out there on quality stocks right now. It is a no-brainer to build a 7% plus yield stream. And in 10 years these stocks will all be at least doubles, some up 4-5x.
No, no equities. A bond portfolio generates a return greater than a money market return so it meets his criteria.
I would need to know what other assets he holds.





But with 20 years to invest, I'd shift my equity position to about 60%.





100% in bonds will eat up his money due to inflation.