“the advantage to the client is to see how high priority goals are less likely to be endangered by market declines and, thus, help the client stick with the investment plan during stressful market periods.”
1. Is this the only advantage of the goal based investing? Will it help clients during up market as well?
Question 1 Part D,
“Do not deviate because there is high standard of living risk. Their assets are small enough that meeting primary goals will be difficult”
2. Where does the question mention they have high standard of living risk? Didn’t find it. Maybe I just missed something here.
Well most clients tend to freak out/want to abandon the set plan/strategy in a downward market, so I would say that’s the primary benefit. As for your question about if it helps in a rising market. Usually when markets are rising, as we’ve seen in the last couple of years, people tend to get greedy and seek a higher rate of return by wanting to assume more risk (they tilt to a risk-seeking behavior). Goal based investing can help temper those expectations down by reminding the client about the goal, it’s importance to them, and the actual required rate of return.
Regarding your second question. I wouldn’t put this on the exam, however, you could justifiably argue GBI helps in up markets as well as down. Highly conservative risk averse investors may have high aspirations or desires but fail to allocate enough to riskier assets to meet them. They need to visually see how risk needs to be taken to get higher returns in up markets. It’s exactly the opposite explanation to benefits of GBI in down markets but flip flopped as market is moving opposite way. In my head it makes sense but I didn’t read that in curriculum and from what I’ve heard the graders grade the curriculum, not what you feel is right or learned on the job.
So I’ll reply on this thread since you were discussing Schweser mock exam 1. I took Schwesers first mock and then as my second mock I took CFAI 2014. Is it me, or was the Schweser much harder? The 2014 exam, in my opinion, was a gift to those candidates.
I didn’t do the 2014 exam yet. But for the Kaplan exam, I think they have a lot of concept direct questions. So we either remember it or not. If we forget some, then it is very difficult to answer.
For example, the core capital, excess capital calculation, relative importance of each distressed debt risk and others… I totally forgot them so I missed good amount of questions because like these.
But this is definitely good practice to find out which sections or concepts we forgot so that we can review on.
Schweser Mock AM questions are graded with even 30 points per one question which is not situation with CFAI AM questions (3-12 points on average per question). This is the first Schweser deviation from CFAI AM. Second, I have impression that Schweser likes making some data mining in questions from given material. I had same experience on Schweser level 2 Mocks. CFAI AM sessions are more straightforward but not easy on average.
Third party providers like playing with questions. I also tried some other providers via iOS apps and just asked myself is it the same exam. This material is bulky that it leaves countless possibilities of testing. The CFAI might also prepare an exam with questions based on the same material which would successfully solve no more than 2% of candidates. But this obviously is not an intention.
@Googs
I agree. For me 2014 AM is also easy but 2013 is much harder.
