Reading 20: Goals-Based Investing: Integrating Traditional class, efficiency, measures, benefits, defining

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 4: Private Wealth Management
Reading 20: Goals-Based Investing: Integrating Traditional and Behavioral Finance
LOS a: Explain the benefits of defining portfolio efficiency in terms of client goals rather than traditional measures of risk and return.

[此贴子已经被作者于2008-9-17 15:15:52编辑过]

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All of the following are potential benefits of defining portfolio objectives in terms of client lifestyle goals EXCEPT:

A) it allows the investor to better connect the probability of goal attainment with investment policy.

B) the optimal portfolio can then be determined analytically.

C) it may improve the likelihood that the investor will adhere to investment policy.

D) individuals typically think of their investment goals in terms of lifestyle goals.

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Answer and Explanation

Choosing the optimal portfolio is still a matter of judgementa tradeoff between risk and return, but the specification of risk is often much easier for the investor to understand. The other three statements are correct.

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Which of the following statements most correctly describes the shift in focus when moving from a traditional finance to a behavioral finance investment process, and what is the most pronounced result of this shift?

A) The definition of investor motives shifts to a focus on emotions, and the most pronounced result is the development of measures to quantify how emotions affect the asset allocation process.

B) The goal definition shifts from statistical measures of risk and return to lifestyle-based objectives, and the most pronounced result is the development of measures to quantify how emotions affect the lifestyle-based objectives.

C) The definition of investor motives shifts to a focus on emotions, and the most pronounced result is that the definition of risk changes from dispersion-based measures to the probability that the stated objectives will be realized.

D) The goal definition shifts from statistical measures of risk and return to lifestyle-based objectives, and the most pronounced result is that the definition of risk changes from dispersion-based measures to the probability that the stated objectives will be realized.

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Answer and Explanation

The primary shift is from the traditional performance concepts of expected return and dispersion-based measures of risk, to defining performance in terms of the realization of lifestyle-based objectives. The most pronounced result is that new measures of risk are required, and the new risk measures are concerned with whether or not the stated objectives are realized.