For this question, the solution says that an individual’s “substantial guaranteed pension would ordinarily indicate the ability to allocate heavily to equities and other risky assets” Given that the individual in the questions concerned is a retired professor, this statement seems to confuse me. I thought that since the individual is already retired, the financial portfolio should ordinarily be weighted heavily to fixed income or low risk investments, regardless of the substantial pension amount, unless it fully covers all retirement expenses and bequest desires, which in this case, it does not. Some comments and help on this? Is my thought process wrong?
i don’t have 2011 schweser, but if the guaranteed pension is providing the guy enough to cover his expenses, then he has the room probably to go into equities and other risky assets. bequests- you want to take them into account for sure, but also see if they’re reasonable/attainable and realistic. if yes, you’re right- try to fund for them. if they’re way out of whack, you have to educate the person. you are right in your thinking that the guy’s human capital is probably low to zero now since he’s retired. your thought process seems fine. not sure of the specifics of the problem, but with that answer it sounds like the $$ coming in probably is sufficient to fund his expenses and/or dude has a big financial portfolio already?
Remember though, that pension is employment related so it’s considered human capital. If the pension is large and covers all expenses, it makes intuitive sense to invest the financial capital more aggressively, as bannisja said.
^ true 'dat. i’m finishing up SS9 today. plugging along before football. go team.
SS6 here. Trying to catch up!
i love this level