Expectations of Aggressive Investors

9/1/2021

It is a universal truth that there is a correlation between risk and reward.  Those investors who take greater risk often are rewarded with higher investment returns.  Aggressive investors have a good understanding of that risk/reward concept, however does that mean they are expecting investment returns that far exceed that of a more conservative investor?  What type of investment returns do aggressive investors obtain compared to their more conservative counterparts?

Nearly a quarter of aggressive investors feel their investment return should simply be the same as the stock market, according to a recent report from Spectrem Group.  This expectation of market level returns is shared by 36 percent of moderate risk tolerance investors, and 38 percent of conservative investors.  Only twelve percent of aggressive investors feel that their investment return should be five percent or more above the stock market.  Less than ten percent of moderate and conservative investors are looking for investment returns at that level.

Expecting and receiving are often two very different things, however.  Investors can have a desired rate of return but there are no guarantees or promises in most investment options, so reality can be different from the expected.  Ten percent of aggressive investors indicate that their advisor did not beat the stock market.  Thirteen percent of aggressive investors do not even know if their advisor beat the stock market or not in 2020.  Twenty-eight percent of moderate investors and 34 percent of conservative investors are equally unaware if their advisor had beat the stock market.  Despite the fact that only 12 percent of aggressive investors expected investment returns in excess of five percent, 16 percent reported that their investment returns were five percent or more above the stock market.

Investment track record is also the most important factor for aggressive investors when selecting a new financial advisor.  Less aggressive investors are more likely to feel the most important factor is that the advisor is perceived as being honest and trustworthy.  Honesty and trustworthiness is the second most important factor for aggressive investors when hiring an advisor.

Satisfaction with a financial advisor is another method of evaluating if client expectations are being met.  Investors with the highest levels of risk tolerance have the highest levels of overall satisfaction with their financial advisor with 93 percent who indicate their overall satisfaction is excellent or very good.  These high-risk investors are also the most satisfied with their financial advisor’s responsiveness to requests

The expectations of investors with a high-risk tolerance are varied and unique.  Do your expectations align with other investors of similar risk tolerance, or are they in line with investors that have a different risk profile?  Properly communicating expectations and clearly measuring the delivery on those expectations is key to a successful advisor/client relationship.