Make a plan. Help
the client develop an investment framework
to guide future decisions. It should take
into account his or her time horizon, risk
tolerance, amount of investable assets and
planned future contributions. Have clients
set goals and decide how much risk they’re
willing to bear.
Own a diversified portfolio
instead of only individual stocks.
Remind clients their
portfolios should incorporate different
asset classes and investment styles.
Failure to diversify across industries
and investment products leaves clients
vulnerable to price fluctuations in a
particular security or sector.
Analyze the companies being
invested in. CPAs and
clients together should examine the
fundamentals of an entity and the
industry, not just focus on day-to-day
stock price shifts. Remind clients that
buying a stock on the basis of market
momentum or only because they like a
certain product or service is a
sure-fire way to lose money.
Buy low and sell high.
Too many people invest in
the asset class or type that did well
last year, falsely assuming it should do
well in the future. The flip side of the
buy-high/sell-low mistake can be just as
costly. Too many investors are reluctant
to sell a stock when it begins to slide
and to redeploy assets into more
promising investments. CPAs should
recommend that clients always have a
stop-loss order on a stock. |
Establish a buy-and-hold
strategy. Too-frequent
trading cuts into investment returns.
Advise clients to form a long-term,
buy-and-hold strategy rather than a more
active trading approach.
Base decisions on information
gathered from a number of sources.
Counsel clients against
acting on tips from the media; if
they’ve heard about it, so have many
others—and that’s already affected the
stock’s price. Remind them to gather
information from several credible
sources.
Learn about fees and
commissions. CPAs
should help clients research the fee
structure of any investment service
provider they’re considering.
Be realistic.
Sit down with clients to
compare portfolio performance with
relevant benchmark indexes to help them
develop realistic expectations. Warn
them against making sudden or
significant shifts in investment
strategy.
Realize their actual risk
tolerance. Assisting
clients involves measuring the potential
impact of a real dollar loss of assets
on both their portfolios and their
psyches to ascertain their appetite for
risk. CPAs also should advise clients
not to wait for a sudden or near-term
drop in asset value to reevaluate their
risk tolerance—instead, they should
assess it together yearly.
|
2019 State of Financial Reporting Survey
What RPA is and how it works