Murray describes the differences between deterministic forecasting and Monte Carlo simulation in investment planning and the traditional and goal-based approach in constructing portfolios. After hearing about these methods, Virginia states that she thinks that the goal-based investing approach is best suited for her needs because
- it allows her to specify a level of risk tolerance for each goal,
- growth toward each goal on a straight-line basis is much easier to understand, and
- it provides the ability to predict the probability of success of each goal
Q. With respect to Virginia’s preference for the goal-based investing approach, her comment that is most appropriate is the one dealing with:
- risk tolerance.
- growth toward a goal.
- probability of success of a goal
Correct answer is A. However, under C: C is incorrect. Probability of success is not a feature of goal-based investing; it is an outcome of the Monte Carlo method for determining capital sufficiency.
Could someone pls tell me how come this is the case? Goals-based investing is optimized for a minimum probability of sucess, so it does have this probability of success as a feature… Many thanks!