CFA CFA Level 3 How old is considered old?

How old is considered old?

  • Author
    Posts
    • vincentt
      Participant
      Up
      0
      Down

      I might have missed something here, I always thought 10 years isn’t long based on what I understand from the syllabus. Also, I thought a retired person should have a shorter time horizon, shouldn’t it?

      Until i came across this EOC question.

      “A 65 years of age couple in good health is considered substantial.”

      1. So how old is old? is 10 years considered short or intermediate?

      Just one question based on this:
      “The family portfolio should have an intermediate to slightly long-term investment horizon. Because their objective of financial security is well provided for in the short term, the couple can afford to focus more on the long-term aspects of that objective.”

      2. So if someone is 65 years old (i assume the average life expectancy is around 76-79 ??), does it mean that as long as they have their short term financial security well covered, their portfolio could still be looking at a long term basis regardless of their age?

    • Alta12
      Participant
      Up
      3
      Down

      @vincentt Generally, when a questions states 65 years old and healthy – it’s considered the start of their retirement phase and it is assumed (unless indicated otherwise) to be at least for 10 years i.e. long term horizon. Your average life expectancy is way too low and when it is a couple the probability at least one of them surviving is much greater as well which needs to be taken into consideration. A retired person may also have multi-generational goals which will also make their objective long term. Depends on their financial goals.

    • vincentt
      Participant
      Up
      4
      Down

      @alta12 so basically time horizon isn’t necessary down to how much longer the person can live but down to the objectives of the portfolio? So if the portfolio requirement multi generation then the time horizon section would be considered long term?

      so 5 years is considered intermediate and 10 < is considered long?

    • Betankrich
      Participant
      Up
      2
      Down

      Although the answers depends on situation. I have stuck to 20-30 Young , 30-50 middle age 50-65 Older age and 65+ as post retirement

    • vincentt
      Participant
      Up
      5
      Down

      @Betankrich‌ in question 12 in reading 10, the time horizon of a 65 years old couple is considered long, so assuming life expectancy of 10 years (not specified, so I could only based on the fact that they are both in good health and the average life expectancy of 75-79?).

      So my question is, did the solution come to the conclusion that the time horizon is long because:

      1. Of the over 10 years life expectancy is considered long
      2. or (10 years isn’t considered long as it’s considered the late stage of the investor’s life cycle) but they base on the fact that the couple’s current financial requirements are well provided for, hence they could focus more on the secondary objectives (leaving $1m to their granddaughter) which could be way beyond their life time?

    • Alta12
      Participant
      Up
      4
      Down

      @vincentt Yes. Say if a couple is 90 years old and their primary objective (apart from meeting their immediate living expenses and let’s assume they can easily meet expenses) is to bequest to their loved ones then this would be considered multi-generational and the asset allocation will depend on the ones receiving the money not the ones gifting and investment time horizon will be considered long term.

    • vincentt
      Participant
      Up
      4
      Down

      Thanks @Alta12‌ ! So if the requirement is to give say $1m and if that target is easily achievable with the current portfolio which means after the lifetime of the giver (say 10 years) the portfolio could easily have a value of more than the objective, will that still be considered long term or will the portfolio end after the death of the giver and when the objective has been met?

    • Alta12
      Participant
      Up
      4
      Down

      @vincentt If say the requirement is to give $1m after 10 years (this would be a long investment horizon) but let’s say they pass away after 5 years and their portfolio at that time was > $1m. Then the person giving away $1m has achieved their long term investment objective as their goal was to give away $1m after 10 years but they were able to do this upon their death after 5 years. Note that the investment objective of giving away $1m is a long term objective when set. However, the untimely death was not forseen and therefore you would still conclude the long term investment objective was achieved despite the earlier than anticipated death date as $1m was still able to be given away as planned. Somewhat ambiguous few chapters – the IPSs!

    • vincentt
      Participant
      Up
      2
      Down

      Thanks @Alta12‌ !

      Just to iterate, time horizon is based on 2 things:

      – the life expectancy of the investor
      – the other objectives that were set by the investor

      and take whichever that’s longer.

    • Alta12
      Participant
      Up
      2
      Down

      @vincentt That’s a great way to put it! And just to be clear, an investor can have a short term objective and a long term objective which will then have the appropriate investment horizon assigned to each objective.

    • vincentt
      Participant
      Up
      4
      Down

      @alta12 thank you so much, that definitely helps!

    • Betankrich
      Participant
      Up
      4
      Down

      Thanks @alta12 for clarification @vincentt‌ for putting up briefly the main point

Viewing 11 reply threads
  • You must be logged in to reply to this topic.