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Finance: What are Unsuitable Recommendations? 0 Views


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Description:

What are unsuitable recommendations? Hit play to find out, and trust us when we say that that's a suitable recommendation.

Language:
English Language

Transcript

00:00

finance a la shmoop what are unsuitable recommendations I'm putting little old

00:08

ladies in extremely risky venture capital investments that likely don't [Old lady cartoon travels along ventural capital timeline]

00:13

get liquid for a decade yeah that's unsuitable putting the whole

00:17

portfolio of twenty-eight year olds in US government short term paper [28 year old portfolio opens]

00:22

unsuitable telling anyone to buy lottery tickets unsuitable the basic idea is

00:27

that if you are guiding a client as their investment advisor you have to you

00:32

know do right by them so that you match their tolerance for risk and reward

00:36

hunger for the reward there yet in investment packages that make sense [Risk and reward on a balance beam]

00:41

old people for the most part just want to live their golden years in peace so

00:44

that they don't have to lean on their kids for financial support do they care [Children sitting on sofa]

00:48

whether they make twenty times their money on an investment in ten years no

00:53

at least probably none is by the time the investments pay off they'll likely

00:57

be doing backstroke Six Feet Under you know on a gentle sloping hill with a [Man points to gravestone]

01:01

view of the babbling brook or be so old and well they won't know the difference

01:05

yeah so they want their money safe just to keep up with inflation maybe a little [Elderly man sitting in rocking chair]

01:09

bit better than that and they want it to be managed with low risk until you know

01:13

the end young people have kind of the opposite concern ie not taking enough [Young girl holding bonds]

01:18

risk being too safe and just owning safe US government paper well that has them

01:23

losing buying power over time after tax three percent government paper a tax

01:28

that ordinary income is something less than two percent and if inflation is now

01:33

three percent while they're losing a point a year in buying power and with

01:36

20-somethings they have something like fifty years before they really have to

01:40

worry about drawing on their savings so they can handle this ups downs sideways

01:46

but over long periods of time the market goes up like think about where it [Market price increases]

01:50

was 50 years ago relative to today and while they go via one path or another

01:54

from here to here and the bottom line is that the recommendations financial

01:58

advisers give their clients have to be suitable for the key elements of their

02:02

life their stage in life like your age their level of wealth their tolerance [List of considerations appear]

02:06

for risk and a whole bunch of other things that make the market a lot more

02:09

like this than like and trust us you don't want to crap out

02:13

it feels a you know crappy [Young girl playing craps at a casino]

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