Know Your Client (KYC) Definitions
Risk Tolerance
Risk tolerance can be defined as how comfortable you are with fluctuations in the value of your investments. The three risk categories below will assist you in determining your own acceptable level of risk.
- Low: Investors who demonstrate low volatility and are willing to accept lower returns for greater safety of capital. This may include money market funds as well as some fixed income funds.
- Medium: Investors who demonstrate medium volatility and are looking for moderate growth over a longer period of time. This may include balanced funds as well as certain Canadian and U.S. Equity funds.
- High: Investors who demonstrate high volatility, are growth oriented and are willing to accept significant short-term fluctuations in their portfolio value in exchange for potentially higher long-term returns. Examples of this may include labour-sponsored venture capital funds or funds that invest in specific market sectors or geographic areas such as emerging markets and science and technology funds.
Investment Objectives
Income: Your objective is to generate current income from your investments and you are less concerned with capital appreciation.
- Investments that will satisfy this objective include fixed income investments such as funds that invest in bond or money market instruments.
Medium term: You are seeking a combination of income and growth by investing in fixed income securities and equity funds.
- An account with growth and income objectives will typically hold at least 40% in fixed income investments and 60% in equity mutual funds.
Long-term growth: You are seeking capital appreciation over the long term and current income is not a requirement.
- This may lead you to hold a relatively high proportion of funds that invest in equities if you also have a higher risk tolerance and long-term time horizon.
Time Horizon
Time Horizon is the period between now and the point when you will need to access a significant portion of the money you have accumulated.
Net Worth
Your Net Worth is calculated as estimated liquid assets (i.e. investments, cash) plus fixed assets (i.e. real estate, registered plan assets) less estimated liabilities (i.e. mortgage, car loan).
