Client Discovery

Question 1

Goals based investment management

Answer 1

• investment strategy that focuses on achieving specific life goals
• separate accounts for distinct goals may be established
• success is measured by whether or not the client is moving positively toward his or her goal (i.e., focus on absolute return)
• traditional indexes and benchmarks are not so heavily emphasized (i.e., less focus on relative return)

Question 2

Liability driven strategies and modeling

Answer 2

• strategies where the primary objective is matching asset returns and availability with known current and future liabilities
• common in pension and retirement funds (e.g., defined benefit plans) and also endowment funds

Question 3

The investment consultant’s fallacy

Answer 3

an investment analysis (common to investment advisors and consultants) that shows graphically how portfolio risk decreases over time due to clustering of returns around a long term average
Consultant’s Graph Concept: Risk goes down over time due to diversification. Can underestimate volatility and/or risk.

Question 4

Samuelson’s and Merton’s Graph

Answer 4

Concept: The expected terminal (ending) range of values of an investment is much wider with more potential outcomes due to uncertainty over time