Another very good question that could easily find it’s way onto the morning session. Here’s what I summarize as the points of each: Lifestyle Protection Strategies: - Focuses on sustainable spending rates. In other words, the tradeoff between expected returns and potential loss from spending rates that are too high. - Differentiates based on reward/risk of not meeting a goal. Cash Flow Matching - More precise alignment of CF needs during specific time periods. - Laddered portfolios are generally used to meet cf needs - Risk management involves ensuring that minimum cf targets are met Horizon Matching - Assumes that achieving a minimum value is a critical goal and will use a zero-coupon bond to meet that requirement while using any excess assets to generate incremental returns. - More suited for when time horizon is not expected to change or when meeting that minimum value is critical Traditional Approach - Compares returns to some relative benchmark - Differentiates portfolios based on asset class mix and efficient portfolios. In other words, it’s a single point estimate that generates the portfolio that has the minimum level of risk for a given return. Do I got this right? I only came across Lifestyle Strategies in CFAI, did not see it in Schweser.
It is in Schweser. A few pages.
Only thing I saw in Schweser was the Horizon Matching… unless I missed it somewhere.
Look at schweser book 1 p. 272-276
PJ, you’re right, this is definitely a good question and even though it’s in Schweser, it’s poorly described there. I added a few points of my own to add to yours… PJStyles Wrote: ------------------------------------------------------- > Another very good question that could easily find > it’s way onto the morning session. Here’s what I > summarize as the points of each: > > Lifestyle Protection Strategies: > - Focuses on sustainable spending rates. In other > words, the tradeoff between expected returns and > potential loss from spending rates that are too > high. > - Differentiates based on reward/risk of not > meeting a goal. *looks at stages throughout life, not just an endpoint *can use absolute performance measures that can lead to different decisions > > Cash Flow Matching > - More precise alignment of CF needs during > specific time periods. > - Laddered portfolios are generally used to meet > cf needs > - Risk management involves ensuring that minimum > cf targets are met *Only works if cf target timing/amount are not changing and investor doesn’t care about getting more than yield on laddered bonds > > Horizon Matching > - Assumes that achieving a minimum value is a > critical goal and will use a zero-coupon bond to > meet that requirement while using any excess > assets to generate incremental returns. > - More suited for when time horizon is not > expected to change or when meeting that minimum > value is critical *and when upside is not important > > Traditional Approach > - Compares returns to some relative benchmark > - Differentiates portfolios based on asset class > mix and efficient portfolios. In other words, > it’s a single point estimate that generates the > portfolio that has the minimum level of risk for a > given return. *Difficult for investors to understand/relate to own spending/lifestyle goals, that’s why lifestyle protection approach can lead to more investor confidence, buy-in, discipline > > Do I got this right? I only came across Lifestyle > Strategies in CFAI, did not see it in Schweser.
Great additions… some good points that I had missed in my original post. Thanks!
based on LOSs related to this topic… we only need to know Lifestyle Protection Strategies vs Fixed Horizon stratgies… Where is cash flow matching from? arn’s this related to multiple liabilit immunization in fixed income portfolio?