If there are no current liquidity needs for an individual investor it is recommended to mention setting aside reserve funds for emergencies…what would you recommend 3 months or 6 months gross or net of salary…no mention of it in Schewser and I am wondering if you guys came across it in CFAI Curriculum ? In real world I recommend 3-6 months of Net Salary to my clients depending on whether they have access to Lines of Credit or emergency borrowing at low cost…but we all know CFAI does not care about reality! Thanks
If I remember correctly, I did see it somewhere in the QBank where it mentions about allocating cash aside as part of the asset allocation for the clients along the line what you have stated 3-6 month of salary
It’s definitely mentioned in Schweser
Slash Wrote: ------------------------------------------------------- > It’s definitely mentioned in Schweser It says 3-6 months of expenses in cash
oh ok so safe to say Net not Gross…! Thanks Guys
Just as an additional note. Mind that for expected negative liquidity events, the PV of that need has to be set aside and removed from the capital base when calculating the return requirement. If there are no explicit liquidity requirements, I think that it is ok to answer “miminal liquidity requirements” and elaborate briefly on the reasons. The 3-6 months salary reserve sounds like a suggestion, maybe too objective. What do you think?