Managing Ind Portfolio: Reading 15, Ingers family

I have problem understanding the logic used to calculate required return in this example (p 167 original reading) They calculate it using projected needs in year 2 divided by net investable assets in year 1. What is this return? Is this required return for year 2? Why did they choose year 2? Is the reason that in year 2 net CF became negative? ------------------------------- Why Gold and 2nd home are not considered investable assets in this example? ------------------------------ Also in IPS (p180 original reading) before table with constraints “To reconsile the portfolio’s considerable ability to accomodate risk and the Inger’s apparent preference for lower risk, their overall risk tolerance is described in this policy statement as moderate or average” My question is that I thought that if ability or willigness to take risk is the lowest than overall risk tolerance will be at the lowest level of eigher ability or willingness ------------------------------- Why gold bullion is not part of illiquid holdings Exhibit 8 page 181?

I think that they chose year 2 because it is more stable than year 1 (that’s when they sell the company) they use year 2 as a reference point to calculate the required return not just in that year but from that point on. Also They choose year 2 because they can devide annual expenses by the end of year 1 value of their assets (which includes proceeds from the sale of the company) 2nd home is not considered an investable asset because the Inger family chooses not to include that. Some investor’s see their real estate as a “home stead” or “home base” maybe something that’s passed on to their generations, not an asset. The Gold Bulion — I have no idea… although it’s probably not that hard to sell Gold… therefore it’s liquid?

the return is the required return. it’s negative because it’s a withdrawal. gold and 2nd home do not produce interest/dividends/income. i’m not sure about the risk factor either. there is a very liquid market for gold bullion. just take it to the bank and they will give you cash.