I’ve seen it there at times on some exams and on others it’s not there at all. Should you just be safe and put all outflows from the portfolio in the liquidity requirement or only major outflows?
If the portfolio is to pay living expenses , yes mention it. If you are covered there e.g. salary after tax matches the living expense , do not mention it, go for bigger things like education needs
ok so only for outflows from the portfolio? What about if the person wants to give to a charity when they die or 15 years down the road? Does that go in unique circumstances or liquidity?
My inclination is to put it into unique , unless I run out of things to write for liquidity
gotcha. thanks.
Where will you be sitting for the exam jana?
The charity piece can even go into “ability to take risk” e.g. 2007 Morning. They have a charitable objective which they can give up , so higher risk taking ability. I think you have to stretch the imagination and come up with creative things like that
client just retired. after tax living expenses are 90,000 per year. income from pension is 10,000 per year. needs to make lump sum payment for college in 5 years over $50,000 desires at death to leave son 1M and charity 2M. tax rate = 30% inflation = 2% would this be a correct liquidity constraint: Client needs sufficient liquidity for annual living expenses of 80,000 (after tax) or 114,286 (pre-tax) and a college payment of $50,000 in 5 years–all in real terms. i think this is very similiar to 2009 exam. i am now “sold” on at least mentioning the need for real funds without doing a calculation for it and leaving off any bequest desires at death because these are desires not needs.
show is correct: u definitely should not include calculation pieces in liquidity I think. Just mention , regurgitate or paraphrase things that look like liquid needs , hopefully one or two outstanding things , no need to think deeply
That’s how I feel the show, if it’s at death, then leave it out.
Do you guys have a general statement that you consistently use for these? Obviously they all differ but generally it’s either maintain real value of portfolio through retirement or maintain real standard of living through retirement, cover after-tax living expenses on an inflation adjusted basis etc.
U referring to Return objective which can be canned in this manner a la Schweser For liquidity , I’ll go simpler like "Needs $xxx for yyy needs in 3 years " etc.
janakisri Wrote: ------------------------------------------------------- > If the portfolio is to pay living expenses , yes > mention it. > > If you are covered there e.g. salary after tax > matches the living expense , do not mention it, go > for bigger things like education needs I’ll mention the need to set aside emergency cash of say six months worth of expenses in case the individual losses his job. This is in the curriculum BTW.
good one bell
so nothing is ever included in return that is not included in liquidity? return gets living expenses and immediate liquidity needs liquidity gets long term liquidity needs, living expenses, and immediate liquidity needs
Remember that liquidity is cash oriented or short term oriented Returns could be rebalancing or total return approach , also could mean an ending value needed e.g TVM calculation given initial , spending and time horizon Slightly different things implied , even if they arise from same/similar need. In Liquidity part you just state what needs to come out of portfolio ( e.g. if portfolio NOT providing living expense then no Liquidity needed for living expenses)