Capacity for loss

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"A Cash Management proposition clearly enhances a Capcity for Loss policy as a client's capacity for loss will clearly change if they understand the value of their cash better.">

A client's Capacity for Loss is dependent upon a number of factors, which include:

  • Their income.
  • Their lifestyle.
  • Their expenditure.
  • Their fear of losing capital.

Culminating in a measure that determines the amount of capital they can lose before it has an impact on any of the above.

However, another significant factor, that many financial advisers ignore, is performance of their cash held on deposit.

If the cash is held in dormant savings accounts, a client will generally hold more on deposit than is really necessary. Whereas, if the cash is managed effectively, to maximise its value, the client will have a better understanding of their requirements and will more often than not, realise they have a greater Capacity for Loss than they first realise.

This then means they can invest more money for effective longer term growth.

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