Reading 19 - Intro to PWM

Question 1

Annuity Puzzle

Answer 1

Life annuity can be used to reduce longevity risk. However, individuals tend to avoid buying annuities to meet their spending needs in retirement.

Question 2

What are the possible explanations of annuity puzzle?

Answer 2

1. clinging on to the hope of funding a better retirement lifestyle
2. desire to keep control of assets
3. high cost of annuities

Question 3

IPS: Key Investment Parameters

Answer 3

TRALOC

1. Time horizon
2. Risk tolerance
3. Asset Allocation
4. Liquidity preference
5. Other investment preferences
6. Constraints

Question 4

How is allocation done for goal based investing?

Answer 4

MVO is done for each goal, but may not be efficient

It is optimized based on either a stated maximum level of volatility or to a specified probability of success

Question 5

How is the success of portfolio management judged?

Answer 5

Priyanka Chopra’s goal is to perform!

1. Goal achievement
2. Process consistency
3. Portfolio performance