I have the impression that CFAI is also inconsistent on the use of time horizons in the item sets. In the earlier exams, they used simple descriptions for the time horizon. For example: multi-stage: first stage to retirement, second stage post-retirement. In the 2009 exam, they used a multi-stage time horizon and allowed for several options. Similarly, in the 2010 exam the solution suggests that the period until death is subdivided into smaller periods e.g. until education costs are paid etc. How about bequest desires? Is that another time horizon? I think, I remember having read somewhere in CFA Books or Schweser that a strong bequest desire which needs to be planned could be a separate stage? Any input here guys?
The way I work it out is by taking major changes in cash in/out flow pattern into account. e.g. employment retirement children’s education windfall having to care for family member(s) etc. etc. each one of the above could potentially delineate a stage
Schweser says if children education reads " we hope to pay for education…" etc. then include an optional stage in between , saying it might be there
you are right they are inconsistent I personally think bequeath should be listed as a time stage
My best guess for why a bequeath is not a different time stage is that there is a change of client and said client could either choose to have his money managed with the manager or not. And someone please correct me if I’m wrong here - my understanding for the big cash outflows (education, medical care) was that if they CLEARLY say that there is a point where it is paid off, then you can add an optional stage.
If they’re not retired its almost always multi-stage.
bpdulog Wrote: ------------------------------------------------------- > If they’re not retired its almost always > multi-stage. We are talking about the most appropriate separation of multiple stages
the answer to 2010 makes it seem like any Liquidity requirement that isn’t the normal annual spending requirement creates a new time stage? is this right? thoughts?
I had a question that stated the investor was just laid off and her expected timeline went like this: Wanted to travel for the next year after that she would go back to work no plans for retiring I said she had a three stage time horizon: travel stage due to liquidity needs, work stage, then retirement stage - as even though she had no plans for retirement she would probably need to retire at some point. The answer said she had a two stage horizon: now to retirement and after retirement
FinNinja, that was schweser, did it today. It was a 4 stage to me. Next 6 months, then travel, then go back to work, then retire
That’s the one nailer! I didn’t think about the next 6 months, but I think both of ours are acceptable answers. I think schweser’s was crap.
nailer, thought the same thing, too. but maybe, because the 750k provided for enough cash, it shouldn’t be a seperate term? Anyhow, I will go for “Long Term, Multistage” and then list my stages as 1) afterl kids education 2) until retirement 3) after retirement should give at least partial credit, what do you guys think?
How I approach the time horizon stages: In general, a change in the stage of a time horizon means that the person’s liquidity requirements have changed significantly. Specifically, this usually means the paying off of liabilities. Things that delineate time horizons: paying off education, retirement, death of a dependent (medical expenses usually), and positive liquidity events. I actually agree with Schweser on that “take a break from working to travel”. I would compare it to Q10 from chapter 14 of the CFAI readings (someone wanting to invest in their son’s business in a year). The first thing is that the expense is desired, not required. She says, “I would like to travel for 6 months”. The other aspect is that the liquidity needs she’ll need traveling are minimal compared to her overall portfolio. Taken to a logical extreme, would a one year, one time outflow of ten dollars change a time horizon?
I would agree with malawyer100 Reason why travel wasn’t a separate time horizon becoz there was no cash flow needed from portfolio as she will get 750k and enough to meet any travel need