Chapter15-Choosing an appropriate investment strategy

Question 1

Framework

Answer 1

1 Investment objective criteria
2 Investment objective examples
3 Investors definition of risk
4 Factors affecting the risk appetite of an institutional investor
5 Factors affecting the long term investment strategy (SOUNDER TRACTORS)
6 High-income vs low- income investments
7 Overseas market vs local market
8 Factors to consider when selecting individual assets
9 Reasons for wanting to maximise return
10 Characteristics of an individual’s liabilities
11 Characteristics of an individual’s assets
12 Assets matching to an individual’s uncertain liabilities
13 Factors affecting the long term investment strategy of an individual
14 Investment strategy of retired individuals
15 Generating sufficient income to live on in retirement
16 Avoiding a fall in asset values prior to retirement

Question 2

Factors affecting the long term investment strategy of an institutional investor

Answer 2

Size of the assets (absolute/relative) 
Objectives 
Uncertainty of the liabilities 
Nature of the liabilities 
Diversification 
Existing asset portfolio 
Return (expected long term) 

Tax treatment of the assets/investor 
Restrictions – statutory/legal/voluntary 
Accrual of liabilities in the future 
Currency of the existing liabilities 
Term of the existing liabilities 
Other funds’ strategies (competition) 
Risk appetite 
Solvency requirements ... 
... and accounting requirements