Professional Documents
Culture Documents
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