Which of these portfolios can tolerate the most risk?
Jane, a mother, has sub portfolios for:
- $1.5mn for Funding her 18 year old son’s undergraduate, post grad med school, and funding his future medical practice
- $2mn for a special needs trust for another son with disabilities, to be funded within the year
- $1.75mn for endowing a chair at her alma mater within 2 years
The CFA answer is #1 given the “8-10 year horizon”.
I’m having trouble with is the subjective nature of the question. The question does not specify the % degree to which the goals are important (99% chance versus 70% aspirational etc), but common sense would imply that her sons education and her other sons disability trust are closer to “Needs” versus “Aspirations”. My guess would have been #3 despite horizon given the lower importance.
So in balancing time horizon versus “importance” of a goal, where do we draw the line. It seems very murky. From this question/answer my presumption is to not make presumptions about which is more important unless precisely specified in the question. But i feel like other questions want you to make presumptions.