A Schs's: Liquidity Risk Vs Savings Risk

CFA Level III
#1

Hi Everybody,

Happy to find you back this year for the level 3.

The following question I found seems partially false.

I would say that liquidity risk is a more important factor in dealing with lifestyle than savings risk. On the other hand savings risk is more important in retirement matters.

Lifestyle appeals to a short-term horizon in which liquidity is essential. And rapidly going through the Curriculum can’t find a direct link on Reading 12.

What do you think?

QUESTION-------------------------------------------------------------------------------------------------------------------------

Which of the following is least likely to jeopardize an individual’s desired lifestyle and/or bequest?

A) Savings risk. B) Liquidity risk. C) Longevity risk.

Your answer: A was incorrect. The correct answer was B) Liquidity risk.

The three primary risks that could jeopardize an individual’s desired lifestyle and/or bequest are: (1) financial market risk, (2) longevity risk, and (3) savings risk. Liquidity risk is not a factor in determining an individual’s desired lifestyle or bequest.

#2

While i haven’t had the chance to look it up, it sounds like one of those list questions one should memorize. I believe they are talking about keeping ones lifestyle retirement. If I were to analyze it, if there was certain money you wished to set aside for retirement and estate purpose , access such as liquidity is not needed. In fact, for these goals, one might use long term products like retirement plans and life insurance where one gives prefers tax advantages to liquidity. Also liquid assets tend to have lower rates of return which are not preferred for long term goals. if you don’t save enough or it doesn’t grow would compromise ones goals