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FinQuiz - Smart Summary, Study Session 4, Reading 10
FinQuiz - Smart Summary, Study Session 4, Reading 10
3. INVESTOR CHARACTERISTICS
3.1Situational Profiling
Foundation Phase
Accumulation Phase
Maintenance Phase
Distribution Phase
Accumulated wealth is
transferred to other persons or
entities.
Tax constraints & transfer
strategies often become
important consideration.
Cautious Investors
Methodical Investors
Spontaneous Investors
Individualistic Investors
Required Return
Desired Return
When an investors return objectives are inconsistent with his risk tolerance, a
resolution required.
If portfolios expected return> investors return objective than:
Assumes less risk to protect the surplus.
Use the surplus for assuming greater risk.
All CFs should be treated the same way (e.g. all should be after-tax).
Determine the amount of investable assets:
If any cash outflow in six months PV of outflow should be subtracted
from the investable assets.
If inflows > expenses, the additional should be added to investable assets.
Subjective assessment.
Psychological profiling provides useful
estimates of an individuals willingness to take
risk.
Important considerations are:
Personality type.
Portfolio holdings.
Implicit or explicit statements.
State whether the clients ability & willingness is below avg avg
or above avg.
Overall risk tolerance lesser of the two if they are in conflict.
4.2 Constraints
4.2.1 Liquidity
Ongoing Expenses
Emergency Reserves
4.2.3 Taxes