Liquidity requirement

[daneyh]

Reading 8, Managing Individual Investor Portfolios. EOC Question 13B ii) Essentially, we’ve determined that the Maclin Family need £26k per year from their investment portfolio to top up their living expenses. Why WOULDNT this be mentioned as part of a liquidity requirement. Surely it means they must keep some part of their investable asset base either in cash (through the form of coupon/dividend income)??

[cpk123]

immediate liquidity need - extra 50K required –

ongoing liquidity need - 26K per year as long as they live (or the portfolio is active)

They also state this in the section on liquidity requirements…

For the sake of completeness, positive liquidity events and external support should also be noted in the policy statement. In the case of a multigenerational family plan, positive liquidity events might include anticipated gifts and inheritance; the advisor should note, however, that inheritance planning is a sensitive and potentially divisive topic among family members.

[daneyh]

is it normal to leave ‘ongoing liquidity need’ as you put it, out of the ‘liquidity section’ as they have done in the CFAI answers?

[Analyst_mamba]

‘ongoing liquidity need’ should only be included in calculating the return objective of the portfolio and not in the ‘liquidity section’ since it is not a one time expense