Pretty Sad

Well it is a sad day when my younger brother asks for investment advice for his 401k and I start answering his question as an individual IPS statement and use the 100-age rule and such to determine Equity/FI ratio but then factor in his Financial Capital/Human Capital… I thought I was going to shoot myself listening to me… Wow they have brain washed me… Oh and this is no joke, this all occured last night :frowning:

Do people over 100 get short stock positions? I would feel pretty odd advising some ancient grandma that she needs to short a few S&P contracts to go with her annuities.

That’s if they haven’t outlived their funds :slight_smile:

Longevity Risk …

Bingo.

JoeyDVivre Wrote: ------------------------------------------------------- > Do people over 100 get short stock positions? I > would feel pretty odd advising some ancient > grandma that she needs to short a few S&P > contracts to go with her annuities. I forsee institutional care in her future. Perhaps we should hedge her exposure to expenses in this area by longing the XLV.

Or should we just put a downpayment on a burial plot?

i just tell everyone under 50 to be 100% in stocks in their 401k. screw the IPS.

And hold 10 or less really good stocks. Over-diversification just prevents you from making any real gains.

well most 401ks force you to invest in mutual funds.

Sorry - Got off the subject of the 401k. The point was that the CFA stresses diversification to the max instead of selecting fewer excellent investments for the long term.

What if your advisor everycame to you an said “You can avoid taxes on that gain by donating to charity” Which is pretty much what CFAI preaches… I would show him the door.

Exactly. Or… “even though the returns on this investment class are historically much lower than equities, your portfolio could benefit from a diversification standpoint.”

JoeyDVivre Wrote: ------------------------------------------------------- > Do people over 100 get short stock positions? I > would feel pretty odd advising some ancient > grandma that she needs to short a few S&P > contracts to go with her annuities. Brilliant stuff there. Grandma 130/30 Fund.

you actually can reduce your tax bill by donating to charity if your tax bracket is higher than 50% if you have $200 worth of taxable income and you donate $100 to charity, then you can reduce the remaining $100 to $0, and your tax liability is $0, that effectivelly converts to 50% tax rate; if you have 60% tax bracket… doing charity is better than just paying the tax bill

Here is where I think the IPS is mistaken: If my grandmother is going to outlive her assets - and at a certain age and spending level, you can pretty easily be certain of it - then her assets will roll to the next generation, or even skip a generation. Since the grandchildren are all young and have high risk tolerance, they want those assets being held in “trust” in the same way they would invest the assets - equity and maybe even AI. In fact, holding everything in equity can provide a stepped up tax base if my grandmother holds the stocks until she dies and passes them in her will, while getting taxed on FI income will erode the returns. At some point - somewhere in the 80s, I suppose - assets should be invested to maximize the returns for the next generation. But that is never discussed in any of the assigned readings. I am on the corporate finance side, so someone who actually runs money for HNW individuals tell me if I am wrong, or if this is standard practice in the industry, regardless of the CFAI reading recommendations. And it goes without saying, I would never breathe of a word of this on the CFA exam.

Applejack Wrote: ------------------------------------------------------- > Here is where I think the IPS is mistaken: > > If my grandmother is going to outlive her assets - > and at a certain age and spending level, you can > pretty easily be certain of it - then her assets > will roll to the next generation, or even skip a > generation. Since the grandchildren are all young > and have high risk tolerance, they want those > assets being held in “trust” in the same way they > would invest the assets - equity and maybe even > AI. > > In fact, holding everything in equity can provide > a stepped up tax base if my grandmother holds the > stocks until she dies and passes them in her will, > while getting taxed on FI income will erode the > returns. > > At some point - somewhere in the 80s, I suppose - > assets should be invested to maximize the returns > for the next generation. But that is never > discussed in any of the assigned readings. > > I am on the corporate finance side, so someone who > actually runs money for HNW individuals tell me if > I am wrong, or if this is standard practice in the > industry, regardless of the CFAI reading > recommendations. > > And it goes without saying, I would never breathe > of a word of this on the CFA exam. depends how much money grandma has. try explaining to her heirs why she can’t afford her assisted living bill because you invested her in enron and pets.com and her account is down 70%. my personal feeling is screw the heirs. most older people just want to retain their capital and if that is what they want that is what i am going to do.

My dad said to me the other day “When I die, the goal is for the government to get nothing”

There should be no Death tax! But then again isnt it all tax-exempt up to around a couple million or so??

I think for the aged wealthy, the issue is to ensure continuity of lifestyle and coverage for medical needs using something like an ALM approach. Assuming that these needs are covered with conservative investments, and assuming that the principals would like to pass on assets to heirs, whatever is left over can be invested with a more aggressive risk profile that is tuned to the heirs’ timelines and risk tolerances (assuming that the principals are ok with the idea). I guess the CFA doesn’t approve of this, but it seems to make sense. If Grandma has $100MM and needs only income from $2M to live and maybe an extra $1M to hold for emergency medical expenses, I just don’t see the need for the remaining $97MM to be sitting in treasuries and AAA corporates just because she’s 85 years old and has a conditional life expectancy of 5-7 years.