I know somewhere in schweser it states actions speak louder then words when it comes to the willingness to tolerate risk for an IPS; however it seems CFAI does not take this into consideration. i.e 2004 exam they have 60% in employer stock but state the do not want to lose more then 12% however they say below average and dont even mention employer stock. I thought you can aeverage then and use average, i think schweser states to go with actions (above average). College expenses. Do they create a new time horizon? I swear with all the practice questions I have done I’ve seen it both ways. To me it seems like it should be a distinct t-h since cash flows change drastically. however 04 exam does not mention this. Liquidity requirement- I thought schweser says you need to mention ongoing liquidity needs however all the CFAI crap I have done it seems they never mention anything about it i.e. if your portfolio needs to generate funds for living expenses? 04 exam again just for one example. Again to me it seems like this is a liquidity issue and should be stated. Does anyone think they’ll give you full credit for either way on the college t-h and the ongoing liquidity? The risk tolerance I know they probably would not. -Thanks.
60% employer stock - could be b/c they feel “safe” in teh stock b/c the “know” the company, doesn’t mean they are risk takers. Colelge expenses - I always include as its own Time horizon Liquidity - I guess you only include it if its outside fo the spending requirements each year, say 1 off things.
So I guess Schweser is wrong with actions speak louder then words, I’ll have to find where it says. To me it seems like if they say they don’t want risk they should be below average and you should consult them with the high allocation to a risky/concentrated holding. But I know for sure schweser states that somewhere. Does anyone have an example where CFAI has liquidity requirement and it talks about ongoing liquidity?
Ongoing liquidity would probably be met by income from the investments. I would say it’s a good idea to mention that in the liquidity section if it’s significant.
schweser is right that actions speak louder than words. Bigwilly is correct that having an undiversified portfolio concentrated in employer stock does NOT necessary equate to risk taking. It could equate to ignorance on the investors part. S23dino, where you might be getting concepts mixed up is if an entrepreneur started a comp and grew it sucessfully and thus has most of thep ortfolio tied up in a single holding. Then that would equate to comfort with risks. But if i work for a large bank and 60% of my portfolio is of the bank’s stock, that doesn’t make me a risk taker, that makes me stupid. And you, as my advisor, should recommend client education to reconcile this.
Bigwilly, How are you specifying the different time horizons on the answer when it comes to eduation expenses. For example, if the investor will need to fund their children’s education in 5 years time and the child will go to school for 4 years would you say: 1st Time Horizon - Up until Education Funding Begins 2nd Time Horizon - Up until Education Ends 3rd Time Horizon - Ending of Education Fund to Retirement 4th Time Horizon - Retirement 5th Time Horizon - Post-Retirement ???
PJ - that’s how i would stat it. but i would only include post-retirement if the case specifically mentions the passing on of wealth to other generations.
Okay cool… Just wanted to make sure I’m approaching the problem in the right fashion.
PJ, I would exclude Post-retirment b/c I guess thats Death…
Yes… I would only include it if he had generational goals or charitable foundations he wanted to establish etc…
PJStyles Wrote: ------------------------------------------------------- > Bigwilly, > > How are you specifying the different time horizons > on the answer when it comes to eduation expenses. > For example, if the investor will need to fund > their children’s education in 5 years time and the > child will go to school for 4 years would you > say: > > 1st Time Horizon - Up until Education Funding > Begins > 2nd Time Horizon - Up until Education Ends > 3rd Time Horizon - Ending of Education Fund to > Retirement > 4th Time Horizon - Retirement > 5th Time Horizon - Post-Retirement > > ??? do u need the 2nd one ? i wld say 3 time horizons first till the college education 2nd till retirement 3rd retirement and if a sizable fortune with dependents 4rth estate planning
Thanks everyone. But I think we talked about this before and there is no post-retirement stage, if they have signficant wealth the disposition of this is planned in the retirement phase. This is right from CFAI material if I remember corrrectly. strikershank thanks that does make senese and that is what I am going to go with but i know schweser had some stupid example where they had some idiot with 60% in employer stock and they said high willingness or something like that.
O and it becomes someone elses IPS after death…
Sometiems I say 1 - until colllege 2 - 4 years at college 3 - after college to retirement 4 - retirment until they depart via DEATH.