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10-managing-individual-investor-portfolios.html
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<!doctype html>
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<head>
<meta charset="utf-8">
<title>Study Session 4 | Reading 10 | Managing Individual Investor Portfolios</title>
<meta name="description" content="Chartered Financial Analyst Level 3 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<section>
<h1>Reading 10</h1>
<h3>Managing Individual Investor Portfolios</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">AlchemistsAcademy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Investor Characteristics</h2>
<ul>
<li>Situational profiling</li>
<ul>
<li>Source of wealth - active (e.g. entrepreneurship) vs. passive</li>
<li>Measure of wealth</li>
<li>Stage of life-cycle - foundation (learning), accumulation (earning), maintenance, distribution</li>
</ul>
<li>Psychological profiling</li>
<ul>
<li>Cautious - loss-averse</li>
<li>Methodical - analytical, disciplined, conservative</li>
<li>Spontaneous - trade often and emotionally</li>
<li>Individualist</li>
</ul>
</ul>
<aside class="notes">
Situational profiling helps to establish an investor's basic philosophy and preferences. Psychological profiling identifies the thought processes, biases, and behaviors that influence an individuals risk and return attitudes.
</aside>
</section>
<section>
<h2>Investment Policy Statement</h2>
<ol>
<li>Set return and risk objectives</li>
<ul>
<li>Return objective - driven by annual spending (income) and long-term savings (growth) goals</li>
<li>Risk objective - driven by both ability and willingness to take risk</li>
</ul>
<li>Identify constraints</li>
<ul>
<li>Liquidity - portfolio (transaction costs, price volatility) and investor requirements (ongoing expenses, emergency reserves, negative liqudity events)</li>
<li>Time horizon - single- or multi-stage and life-cycle classifications</li>
<li>Taxes - income, capital gains, wealth transfer, property</li>
<li>Legal and regulatory environment</li>
<li>Unique circumstances</li>
</ul>
</ol>
</section>
<section>
<h2>Asset Allocation Process</h2>
<ol>
<li>Determine the asset allocations that meet the investor's return requirements</li>
<li>Eliminate asset allocations that fail to meet quantitative risk objectives or are otherwise inconsistent with the investor's risk tolerance</li>
<li>Eliminate asset allocations that fail to satisfy the investor's state constraints</li>
<li>Evaluate the expected risk-adjusted performance and diversification attributes of each allocation and select the most attractive one</li>
</ol>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
</section>
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