But we had to come up with two reasons why their ability is lower. The above two were only ones I could come up with.
Oh, there was one more - source of wealth. They had never managed such large sum before, received it from their parents and hence, not experienced in managing risk.
Fwck… I wrote too much… no wonder I am coming back to finish writing what I started this year.
short term deposit - willingness to take risk, not ability to take risk. Crap, this could be bad… I read in Schweser - respect willingness if willingness is lower than ability. Respect ability if ability is lower than willingness. However, I think although low willingness was indicated, they had asked for growth to be able to retire comfortably.
You’ll be fine. your mistakes sound like minor ones. If you’re up at this hour writing comments on this forum, you’re already ahead of the curve, in a sense.
try this goofy one on for size:0)
I said that the possibility of paying for the kids college lowered the ability to take risk.
living with parents at the age of 30, just meeting your expenses from two incomes, kids might turn out as dumb as a rock and you are on the hook for tution - how is that above average?
there was a table in CFAI that summarize how aggressive you can be at different levels of wealth. only the very rich can be aggressive at all stages of life and HNW at some. the rest can barely be average.
mmeridith Wrote:
——————————————————-
> Atlanta,
>
> You’ll be fine. your mistakes sound like minor
> ones. If you’re up at this hour writing comments
> on this forum, you’re already ahead of the curve,
> in a sense.
>
> try this goofy one on for size:0)
> I said that the possibility of paying for the kids
> college lowered the ability to take risk.
I am just too distressed… this is therapeutic for me… I could have passed this exam… coulda woulda shoulda…
CFAAtlanta Wrote:
——————————————————-
> mmeridith Wrote:
> ————————————————–
> —–
> > Atlanta,
> >
> > You’ll be fine. your mistakes sound like minor
> > ones. If you’re up at this hour writing
> comments
> > on this forum, you’re already ahead of the
> curve,
> > in a sense.
> >
> > try this goofy one on for size:0)
> > I said that the possibility of paying for the
> kids
> > college lowered the ability to take risk.
>
> I am just too distressed… this is therapeutic
> for me… I could have passed this exam… coulda
> woulda shoulda…
I agree - cheaper than $99 bucks an hour, or whatever the going therapy rate is.
sleep helps too…signing off ;0} zzzzzz
nailit Wrote:
——————————————————-
> living with parents at the age of 30, just meeting
> your expenses from two incomes, kids might turn
> out as dumb as a rock and you are on the hook for
> tution - how is that above average?
>
> there was a table in CFAI that summarize how
> aggressive you can be at different levels of
> wealth. only the very rich can be aggressive at
> all stages of life and HNW at some. the rest can
> barely be average.
What about the fact that Ms. Carvalho was expected to inherit “substantial wealth” at her parents’ death?
Ok so you’re counting on an unexpected event? And they do not have a sizeable asset base. 995K is nothing considering they have a 600K mortgage liability and they don’t have help for another 10 years. If their portfolio comes up and short and they have to liquidate to pay for the house, they won’t have much left. Put yourself in their situation and tell me if you would put most of your money in equities or in tax-exempt muni bonds.
I think I put below, the way it said “They are just able to cover expenses” or something like that coupled with the relatively small portfolio and that there two idiot kids might not pass the test.
just to clarify…was the fact that they were “required to keep investable assets in short-term deposits” willingness or ability? It seemed more like willingness, but the way the statement was worded made me think ability, which pushed me to below average tolerance?
An additional factor is that it mentions that they are very confident regarding their future employment. Since Human capital is a very significant factor, I picked above average.
question stated that the family didn’t want to count the second trust distrubution in investable income, but did want to count it as discretionary wealth. This amount was gar. to come in when she was 40. Long time horizon, 1700000 discretionary wealth, and possibly substantial inheritance later…def above average ability
also it wasn’t mandatory that they keep the 500k in cash, they just wanted to keep a real value of 500k
sandy_capone Wrote:
——————————————————-
> An additional factor is that it mentions that they
> are very confident regarding their future
> employment. Since Human capital is a very
> significant factor, I picked above average.
I agree, CFAI readings made a huge to do about this.
kingcobra Wrote:
——————————————————-
> Does anyone know what happens if you write “Above
> average to Average”. Actually, that’s what I
> did…
>
> ….Does CFA penalize you ?
I think I choose below average as well - strictly because their housing was 100% paid from the portfolio. I thought there was an example I saw somewhere that resulted in below average in a similar situation to this.
Etienne Wrote:
——————————————————-
> Definitely below, in my opinion.
>
> The argument that they could pay cash for the
> house does not fit with their objectives… they
> need a c.5% real return from their portfolio OR
> ELSE…
>
> Furthermore, this family has assets 995k… they
> are not rich.
OR ELSE? Or else what? They live on the streets? No! They pay their mortgage off and still have money left over. Their assets are worth more than their mortgage which is the only debt it seems they have. Their living expenses are completely offset by their salaries and it expected to remain that way for the foreseeable future. They will be receiving another 750K in 10 years. I highly doubt their portfolio would be gone in 10 years even in the worst case scenario. The portfolio only has to provide their mortgage.
It is easy to get caught up in what ifs but CFAI doesn’t want you to do that. They give you the facts. Don’t make it more complicated than it is. Just look at 2006 and see their explanation. It is essentially the same case.
These people don’t “need” a 5% real return. They want a 5% real return so that the real value of the portfolio stays the same. They aren’t going to sell their house if the earn 4%.
yeah, I stayed with above average.
But we had to come up with two reasons why their ability is lower. The above two were only ones I could come up with.
Oh, there was one more - source of wealth. They had never managed such large sum before, received it from their parents and hence, not experienced in managing risk.
Fwck… I wrote too much… no wonder I am coming back to finish writing what I started this year.
short term deposit - willingness to take risk, not ability to take risk. Crap, this could be bad… I read in Schweser - respect willingness if willingness is lower than ability. Respect ability if ability is lower than willingness. However, I think although low willingness was indicated, they had asked for growth to be able to retire comfortably.
question never asked about overall risk tolerance… it asked “Overall Ability To Take Risk”
Atlanta,
You’ll be fine. your mistakes sound like minor ones. If you’re up at this hour writing comments on this forum, you’re already ahead of the curve, in a sense.
try this goofy one on for size:0)
I said that the possibility of paying for the kids college lowered the ability to take risk.
living with parents at the age of 30, just meeting your expenses from two incomes, kids might turn out as dumb as a rock and you are on the hook for tution - how is that above average?
there was a table in CFAI that summarize how aggressive you can be at different levels of wealth. only the very rich can be aggressive at all stages of life and HNW at some. the rest can barely be average.
but they just got 750,000…
mmeridith Wrote:
——————————————————-
> Atlanta,
>
> You’ll be fine. your mistakes sound like minor
> ones. If you’re up at this hour writing comments
> on this forum, you’re already ahead of the curve,
> in a sense.
>
> try this goofy one on for size:0)
> I said that the possibility of paying for the kids
> college lowered the ability to take risk.
I am just too distressed… this is therapeutic for me… I could have passed this exam… coulda woulda shoulda…
CFAAtlanta Wrote:
——————————————————-
> mmeridith Wrote:
> ————————————————–
> —–
> > Atlanta,
> >
> > You’ll be fine. your mistakes sound like minor
> > ones. If you’re up at this hour writing
> comments
> > on this forum, you’re already ahead of the
> curve,
> > in a sense.
> >
> > try this goofy one on for size:0)
> > I said that the possibility of paying for the
> kids
> > college lowered the ability to take risk.
>
> I am just too distressed… this is therapeutic
> for me… I could have passed this exam… coulda
> woulda shoulda…
I agree - cheaper than $99 bucks an hour, or whatever the going therapy rate is.
sleep helps too…signing off ;0} zzzzzz
nailit Wrote:
——————————————————-
> living with parents at the age of 30, just meeting
> your expenses from two incomes, kids might turn
> out as dumb as a rock and you are on the hook for
> tution - how is that above average?
>
> there was a table in CFAI that summarize how
> aggressive you can be at different levels of
> wealth. only the very rich can be aggressive at
> all stages of life and HNW at some. the rest can
> barely be average.
What about the fact that Ms. Carvalho was expected to inherit “substantial wealth” at her parents’ death?
J
Ok so you’re counting on an unexpected event? And they do not have a sizeable asset base. 995K is nothing considering they have a 600K mortgage liability and they don’t have help for another 10 years. If their portfolio comes up and short and they have to liquidate to pay for the house, they won’t have much left. Put yourself in their situation and tell me if you would put most of your money in equities or in tax-exempt muni bonds.
Below FTW.
I think I put below, the way it said “They are just able to cover expenses” or something like that coupled with the relatively small portfolio and that there two idiot kids might not pass the test.
just to clarify…was the fact that they were “required to keep investable assets in short-term deposits” willingness or ability? It seemed more like willingness, but the way the statement was worded made me think ability, which pushed me to below average tolerance?
anyone else?
An additional factor is that it mentions that they are very confident regarding their future employment. Since Human capital is a very significant factor, I picked above average.
Hmmm I think I remember writing something like that. Maybe I put above, I can’t remember.
Definitely above. They have a long time horizon, their income covers their expenses, and they have a large windfall coming.
Wait, what where the other parts, was there a part b which was like give two reasons above and two reason it could be below?
above average for sure
question stated that the family didn’t want to count the second trust distrubution in investable income, but did want to count it as discretionary wealth. This amount was gar. to come in when she was 40. Long time horizon, 1700000 discretionary wealth, and possibly substantial inheritance later…def above average ability
also it wasn’t mandatory that they keep the 500k in cash, they just wanted to keep a real value of 500k
sandy_capone Wrote:
——————————————————-
> An additional factor is that it mentions that they
> are very confident regarding their future
> employment. Since Human capital is a very
> significant factor, I picked above average.
I agree, CFAI readings made a huge to do about this.
living expenses is supposed to rise along with earnings, that statement merely tells you the portfolio doesn’t need to come up with living expenses.
above for me
Does anyone know what happens if you write “Above average to Average”. Actually, that’s what I did…
….Does CFA penalize you ?
chill2day
So what did you circle?
kingcobra Wrote:
——————————————————-
> Does anyone know what happens if you write “Above
> average to Average”. Actually, that’s what I
> did…
>
> ….Does CFA penalize you ?
you had to circle something not write something
The expenses are critical in nature .. risk tolerance has to be below average ……
Definitely below, in my opinion.
The argument that they could pay cash for the house does not fit with their objectives… they need a c.5% real return from their portfolio OR ELSE…
Furthermore, this family has assets 995k… they are not rich.
I completely agree with Etienne
i disagree….
zidane…. our IPS was competely different frm theirs…..
they had no WALT
Damn I think I wrote this part out. I never filled out the template….
Scr^& it. I dont know what CFA’s policy is on not writing within the bounds.
chill2day
Damn I think I wrote this part out. I never filled out the template….
Scr^& it.
I dont know what CFA’s policy is on not writing within the template boundary.
And with my fuzzy answers, it is probably worse….
chill2day
I think I choose below average as well - strictly because their housing was 100% paid from the portfolio. I thought there was an example I saw somewhere that resulted in below average in a similar situation to this.
Etienne Wrote:
——————————————————-
> Definitely below, in my opinion.
>
> The argument that they could pay cash for the
> house does not fit with their objectives… they
> need a c.5% real return from their portfolio OR
> ELSE…
>
> Furthermore, this family has assets 995k… they
> are not rich.
OR ELSE? Or else what? They live on the streets? No! They pay their mortgage off and still have money left over. Their assets are worth more than their mortgage which is the only debt it seems they have. Their living expenses are completely offset by their salaries and it expected to remain that way for the foreseeable future. They will be receiving another 750K in 10 years. I highly doubt their portfolio would be gone in 10 years even in the worst case scenario. The portfolio only has to provide their mortgage.
It is easy to get caught up in what ifs but CFAI doesn’t want you to do that. They give you the facts. Don’t make it more complicated than it is. Just look at 2006 and see their explanation. It is essentially the same case.
These people don’t “need” a 5% real return. They want a 5% real return so that the real value of the portfolio stays the same. They aren’t going to sell their house if the earn 4%.
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