April 30, 2012

Do Your Clients Invest for the Thrill of It?

Have you ever invested a large sum in a risky investment mainly for the “thrill” of seeing whether it went up or down in value? Have your clients?

I have never done that and wouldn't even dream of doing it. Back in the days when I was a practicing advisor, I would never have asked my clients that question for fear of offending them by suggesting that they might just have done something so unwise.

But you might be surprised, as I was, by how many people actually answer “Yes.” We ask that very question in our FinaMetrica risk tolerance questionnaire which half a million investors have now completed over the past 13 years.

Have you ever invested a large sum in a risky investment mainly for the "thrill" of seeing whether it went up or down in value?

 

Male

Female

No.

72%

87%

Yes, very rarely.

15%

9%

Yes, somewhat rarely.

10%

4%

Yes, somewhat frequently.

2%

1%

Yes, very frequently.

0%

0%

 

So roughly one in four clients has made a “thrill” investment, with males being roughly twice as likely to do so as females. The gender disparity here illustrates the more general risk tolerance disparity. Males are, on average, marginally more risk tolerant than females but this difference becomes magnified in the riskier activities.

Would you like to know if your client had never made a “thrill” investment? My guess is that you would, particularly if they had done so more than once. Exploring why they had done so, what the outcomes were and how they felt about those outcomes would give you a more in-depth understanding of your client.

If the “thrill” experience was important to them you might want to consider how that could be catered for in the future without jeopardising their other needs.

As an aside, it is worth noting that it can be easier to ask some questions in a questionnaire that it would be to ask them in person.

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