Individual IPS - abtility to take risk

believe, everyone, difficult, individual, understand

Just in the process of reviewing individual IPS and find the ability to take risk is very subjective and difficult to answer.

I believe everyone here can understand the factors affecting ability to take risk well, seperately, as follows:

Most common factors:

1.Time horizon - the longer the time horizon, the greater ability to take risk
2.Portfolio size - expenditure/investable asset, the smaller the ratio, the larger the portfolio size. And the larger the size is, the greater ability to take risk
3.Whether the investor highly depends on the portfolio for living, or say, is the portfolio the only income source for the investor - if the investor has stable income(salary) >=living expense, he will have greater ability to take risk
4.Wheher the investment goal is significant - the more significant the goal, the less the ability to take risk. Significant goals include: maintain living style, children's tuition fee, parents' medical expense.
5.Liquidity needs - the larger the liquidity needs, the smaller the ability to take risk.

Other factors:

5.Investor's financial status - whether has outside debt or not
6.Investor's health status

Now, I have a concern about the most common factors affecting ability to take risk - what is the order from most important to least important? For example:

If an investor is young, has large asset base, his salary can far cover his living expense, no doubt, the investor has above-average abiltiy to take risk.

If an investor is young, has large asset base, but his salary can't cover his living expense, then he will only has average ability to take risk

If an investor is old, has small asset base and his living expense can be partially covered by pension plan, then he has below-average abitlity to take risk

What will the ability to take risk be if:
1. The investor is young, has small asset base, his salary can fully cover his living expense
2. The investor is old and retired, has large asset base, his living expense can partially covered by pension plan

I think this will be valuable if we can make a summary regarding the order of importance of the factors affecting abitlity to take risk.

Your comment will be most appreciated!!!

相关主题：

. How many CFAs are in China?

. 这是你不得不知道的CFA

. Law School after CFA... crazy much?

. How difficult is L2 compared to L1

. Reading 55: Treynor-Black Model example pp. 468-471

Windjam

CFA Candidates

Rank: 2

UID: 222304
帖子: 402
主题: 6
注册时间: 2011-7-2
最后登录: 2016-8-13

2^#

发表于 2011-7-11 19:22 | 只看该作者

What will the ability to take risk be if:
1. The investor is young, has small asset base, his salary can fully cover his living expense

ABOVE AVERAGE- long time horizon, lots o' human capital, no dependents (if someone were relying on him then it wouldn't be above ave). in terms of willingness, always look for keywords that the investor says or look at the portfolio they have if you are given one. if the dude races fast cars and has tons of emerging mkts stocks and alts, above ave. if something less, notch it down.

2. The investor is old and retired, has large asset base, his living expense can partially covered by pension plan

i would lean here towards BELOW AVE, although the large asset base. it's more a preservation of capital thing unless it says he wants to go and gift to charity or kids some massive amt of $$ that maybe would make him want to be more aggressive. yeah, the dude could be more aggressive, but no need is sort of how i'd call this one.

not saying i'm right either- anyone else feel free to comment, but i usually come out ok on my IPS's (knock on wood).

TOP

liangfeng

CFA Candidates

Rank: 3 Rank: 3

UID: 218211
帖子: 659
主题: 120
注册时间: 2011-5-26
最后登录: 2012-9-12

3^#

发表于 2011-7-11 19:22 | 只看该作者

ROGER1982 Wrote:
-------------------------------------------------------
>
> 2002 essay Q5
>
> Claire Pierce, a vice president, is 42 and has two
> children: a daughter-21 and a son-7. Her total
> portfolio is 2,200,000. Her goals in order of
> priority are:
> 1.Funding her childrens' tuition cost. Daughter's
> cost has a PV 18,000. Son's cost has a PV 91,000
> 2.Increase the portfolio to a level to fund the
> retirement living expenses-180,000
> 3.Building a "dream house" in 5 years. The PV of
> cost is 375,000
>
> After duducting the PV of the cost, the value of
> the portfolio is 1,509,000. Pierce's salary is
> 145,000(pre-tax), and her current living expense
> is 100,000. Tax rate is 30%
>
> Besides, Pierce is debt-free and has company-paid
> medical insurance
>
> 2005 essay Q7
>
> Eliabeth Yeo, 55, will retire 1 year from now as
> managing director. At retirement, she will receive
> MYR450,000 taxable lump-sum payment and MYR
> 500,000 tax-exampt lump-sum payment. She will also
> receiving MYR8.5 M as proceeds from the sale of
> her company low-basis stock(tax-free). She also
> has a 1.2 M money market fund
>
> Her current income(after tax) is equal to living
> expense 250,000
>
> Per my understanding, the 2 people have similar
> conditions, both of them have long horizon, large
> asset base, and their income can just cover the
> living expense. Thus, both of them should have
> above-average ability to take risk. But in 2002
> essay Q5, the answer is average
>
> Can anyone can help to answer this?

For the 2002 essay Q5, I think it should be average since she still has a long way to go till she retires and also to fund her after retirement needs.

2005 essay Q7, could be average to above average. Lots of money with nothing to spend on. Needs to think of her retirement.

TOP

返回列表

上一主题：IFRS vs US GAAP

下一主题：Ethics L3 vs L2

Individual IPS - abtility to take risk

相关主题：

[收藏此主题] [关注此主题的新回复]

[通过 QQ、MSN 分享给朋友]