Let’s say that your client wants to buy a sports car in the comin two weeks. From the Objective part of the IPS, that’s clear, you deduct it from the Asset base when computing Return. From the Constraints part, I’m not sure what to do: - State it as a Liquidity constraint - State it as a Unique constraint - Not state it (since it’s not going to be part of the portfolio) ???
Goes under liquidity.
leave it out altogether. By the time you write up the IPS, have client meeting, bill him for it - he will have no money left to buy the car anyway…
I haven’t done any mock but I would think/hope that in liquidity you would only include ongoing liquidity needs. So I would let it out
If it requires $$ in excess of contributions (through income), then it should be included in the liquidity section as it is going to reduce the size of the investable funds. Look at Q10 in Reading 14, where the investor needs $300K for a house purchase.
Also see the Mueller example, volume 2 EOC p148. The $50,000 endowment fund contribution goes into the liquidity section.