If a question states that the investor desires to keep 6 months living expenses in cash for emergencies, is this amount deducted from the investable portfolio? Or do you included that cash in the total portfolio value since it is still in the portfolio. This is can cause a large difference when calculating the required return. I feel like I have seen it both ways. Not sure what is correct.
I say you need it to be allocated to cash and included in the total portfolio value. It’s an emergency fund and not going to be spent on something, thus the cash is still in the portfolio. IMO.
I think wandering is correct if it’s emergency funding include in portfolio if the cash will need to be spend in a few months on a particular thing, then exclude from portfolio
Usually, i think the questions say whether the investor i.e. Mr. Inger wants a particular asset to be seen as past of his portfolio. Otherwise, methinks it should be classified as part of the porfolio
Schweser 3-day prof said any money to fund something within 1 year, remove from portfolio. Otherwise include it. Also, he said on the exam IPS don’t say the person needs x months’ cash for emergency UNLESS the problem specifically tells you to.
Definitely include it in the portfolio and return calculations. If this question is coupled with some asset allocation question (i.e. “recommend any of these 4 possible allocations” with % values of each asset classe), then just remember that the emergency reserve is invested in cash/money market.
ng30 Wrote: ------------------------------------------------------- > Schweser 3-day prof said any money to fund > something within 1 year, remove from portfolio. > Otherwise include it. This is how I understood it. Short term liquidity events (as defined by 12 months or less) should be taken out of the overall portfolio. Anything longer must be planned for from the portfolio. Also, he said on the exam > IPS don’t say the person needs x months’ cash for > emergency UNLESS the problem specifically tells > you to. Did he seem pretty solid on this ng? This makes me a little uneasy to leave it out. Did you see that Pens game? I don’t like our chances at this point.
Yeah he repeated it a couple times. Just saw highlights. What a shootout!