In any relationship between a professional and client, the client can choose who to hire and on what terms. If the professional does not agree, then the client can go elsewhere. In the case of the ICPM, however, once the professional and the client come to an agreement, the professional is in charge of what happens day-to-day.

There is a major difference between a full-service financial advisor and an ICPM. The advisor must approach the client for instructions with respect to all transactions. The ICPM need only report periodically, as instructions have been given in the form of the initial contract.

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Most investors believe their time horizon refers to the date when they will no longer have to grow their investments. They believe this because it is what their financial advisors have told them.  Investors should understand that it is in the interest of financial advisors to say this, so they can keep a client in higher-risk securities for which they likely receive greater compensation.  Simply put, the longer financial managers handle these investments, likely the more money they make.

The investopedia.com dictionary defines time horizon as “the length of time over which an investment is made or held before it is liquidated.”  According to James Bagnall of the Globe and Mail, a better definition is the length of time between when the client wants to grow funds and the time the client has to live off the income from those funds.  In other words, investors need to realize that this time horizon is really the span of time they are taking on risk to grow their funds.  A new time horizon starts when they know will need income from the past growth.

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Almost all investors want their investments to be low-risk. In industry jargon, risk refers to volatility. Volatility is the history of a security’s or a market’s gains and losses. As investment advertisements state, past experience is no assurance of future performance. However, past experience does often indicate the degree to which the value of the security and the market will fluctuate.

The Beta Factor

To an investment industry professional, if something rises quickly, it can be expected to descend just as quickly. The industry term “beta” compares the value changes of the security to the market generally. A low beta means that the security value will change less than the market changes, and is therefore of lower risk. However, the stock market itself can be very volatile, i.e. risky. We have seen increases of 100% and decreases of 50% (which amount to the same number of dollar) in a very short period of time. And there is no way of forecasting when, how much or for what length of time the market will rise or fall.

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