When is a Lifestyle Protection strategy appropriate, vs. Fixed Horizon? I read Chp. 18 back in March and am reading my notes, but it’s not going in… - Lifestyle Protection strategy talks about sustainable spending vs. potential loss. - Fixed-Planning Horizon strategy talks about amount of capital that could be lost, as a “horizon date” approaches (coinciding with major life event) Can anyone give any color? maybe an example?
If I remember correctly, it is the difference between having regular CF that beat inflation vs having a guaranteed payout at a predetermined future date.
thx tiddly, that’s probably the missing link. i’ll check the book later & update the post
Isn’t lifestyle protecttion strategy concerned with trying to make sure you enjoy the current standard of living, thus as tiddly said, having to beat inflation and meeting liabililities. Doesn’t this use surplus volatility, correct me if I am wrong. I think there was a graph that would show the surplus during the life time of the client or something. Fixed-horizon would be more of the client’s desire to have a specified amount at a point of time in the future. So, you follow a strategy using a zero-coupon bond that guarantees you that amount plus use active management if possible. Hmm… hope I am right on the above.
The lifestyle protection strategy: - usually allocates amounts to equity and debt in order to minimize shortfall risk - allows for more upside potential than the fixed planning horizon method. - e.g., it it is important for you to retain the possibility of buying a beach house in LA upon retirement, you would be better off utilizing the lifestyle protection strategy The fixed planning horizon strategy: - dedicates an amount to zero coupon bonds that when mature will fund the minimum objective. - less likely to fund the more expensive objective (such as the beach house) - not useful when facing an uncertain time horizon