State Reasons For Above Average Risk

[dfg7772]

S2000, can I get your opinion?
For Individual IPS questions asking to state reasons for above average risk, can I just say “They have a long time horizon?” Or do I need to elaborate that “Investors have a long horizon which allows them to withstand volitile periods”? I am sure this has been asked, but couldn’t find it.
Any thoughts would be much appreciated,
Thanks

 

[hei.so]

I am not S2000 but I think I would put your second answer. In the 2013 AM exam, two 45 year old couples have above average risk. The reason:
“They are relatively young and have a long time horizon, so they are likely to have time to recover from any unanticipated adverse financial event.”

 

[danv0330]

my thinking is that you always need a “what” and “why”
what - time horizon
why - they are likely to have time to recover from any unanticipated adverse financial event.

 

[S2000magician]

You don’t need anybody’s opinion on this; go straight to the horse’s mouth: in the guideline answer for question 7C on the 2015 morning exam they have this sentence about Ryan’s ability to take risk:
Factors that increase Ryan’s ability to take risk are a long time horizon and the fact that he could return to work if necessary.
All you need to say is that they have a long time horizon.
Beware of making these questions harder than they really are.

 

[jamespeer]

This above point is an important one. Any ‘flexibility’ in the client’s circumstances increases their ability to take risk. For example, above “Ryan can return to work if necessary”, this lowers his ‘Standard of Living Risk’ and therefore increases his risk tolerance - so if clients are sufficiently young, this may be worth mentioning. Also look out for discretionary expenditures, regular gifting/donations etc. as these are optional and not essential and could be reduced, which also increases risk tolerance. Long term time horizon and low relative spending needs compared to the asset base are two that have come up most frequently in the mock exams I have done.