for background: the foundation’s payout is 4.7% but they want to earn another 3% for inflation and 2% above that just because, so total return required is: (1.047*1.02*1.03)-1=10.0% Since they want to pay out 4.7% annaully, when I first looked at the asset allocation options I crossed out all the ones that had current income below 4.7%. But then I re-read the vignette, which says: “the total retun objective is the most important goal. If necessary, the grants will be paid from either contributions or fromt he Foundation assets.” Since the foundation is tax exempt, they would be indifferent to the source of income, right (“total return is most important”)? So I changed my pick from “C” and chose the highest returning allocation that fit all the other criteria even though it only returned 4.0% in current income (I chose allocation “A”)? My question to you guys is: I can justify this to myself, but I’m wondering if CFAI would think they same as Schweser on this. Thoughts? (Note: I didn’t read anything in the vignette that says the distributions have to come for current income. No capital gains tax or income tax info, just “total return is the most important”)
bump
anybody have any thoughts on this? can’t sleep at night till I have an answer.