IPS - Portfolio required return

Is it always the case

(Pre tax net income needed)/ (Investable Asset) ?


PUZZLE time!!!

It’s not always the case, unless the case specially states otherwise.

ok, I should say 80% case…

Lol, puzzle time…

watch out for key words


Pre-Tax/After-Tax return

in the first year of retirement = (Expense - Income) / Net Investable Assets

over time (in so many years)(use the Calc to obtain I/Y)

cpk123 or magician,

I recall an IPS question from a prep provider. There was a future expected payment (for a college or another important thing). I calculated the present value, and subtract it from the investment base.

Well, the answer didn’t do that. They just mentioned the future payment under Liquidity.

I still feel that the right approach is to subtract PV of future cash outflows (unless they’re unrealistic or not mandatory).

Am I right?

My cable bill of 89.99 is due in 45 days, do I take the PV of that to determine how much I owe?

^ outflows in the current year are easy. just subtract them from inflows. The issue is with outflows in few years , eg tuition of 80 K in 5 years.


Recurring outflows: subtract from inflows

One time outflows: subtract from investment base

Liquidity is a short-term issue, <1-year. Emergency reserve is an on-going cash buffer (similar to liquidity) Both are kept in safe, short term liquid “cash-like” assets. Sometimes removed completly from the investable asset base.

If the outflow is in a few years then the IPS has a multi-stage timeframe. First stage would be setup the portfolio to satisfy the liability due in a few years, you would not put this $ amount of this stage into the liquidity class as you would be sacrificing yield for saftey (liquidity) which isn’t necessary.

Appreciated. Two follow up quesions:

  1. If the question do not specify, for example, 2012 AM - Calcualte the required annual return, we should treat it as real required return?

  2. over time (in so many years)(use the Calc to obtain I/Y) -> the number is real required return?

I/Y number should be real rate.