Homework Answers
Time Horizon
a. For Individual Investor - It depends on the objective of the individual when he wants to retire, what are his aspirations and what he wants to achive.
b. For DC participant - In participant-directed, Defined Contribution Plan the employees decides where to invest money, therefore the time horizon is taken of the respective employee when he wants to retire.
c. For DB Sponsor - It depends on the demographics of the workforce if the workforce is young the time horizon would be long if the workforce is old the time horizon would be small.
Performance Objective
a. For Individual Investor - The performance objective can be absolute for example, the real growth rate of the portfolio should 4% or relative like the portfolio should grow more than s&p 500
b. For DC participant - The performance objective can be linked to the growth in the salary of the employee or to an external market index.
c. For DC Sponsor - The performance objective should be the Asset Liability Match, the assets should always exceed the liabilities.
Investment Risk
a. For Individual Investor - Age of the investor, if the investor is young higher ability to take the risk, if he is old the risk-taking ability is reduced
b. DC Participant - Sources of Income post-retirement, if the individual is dependent solely on the this for post-retirement, then the ability to take risk reduces and vice versa.
c. DB Sponsor - The financial condition of the sponsor, if the financial conditions of the sponsor is good, then higher ability to take risk and vice versa.
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for Bill and Joyce Owens, it need to include the client profile,
recommended investment strategy, Present an allocation that is
consistent with the strategy it has to match with the profile,
Expecations (which have to get the same return for each of my asset
classes), Syntax (has to sound like an investment policy
statement)
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Some long reports can contain an executive summary section, as
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