Goals Based Planning Financial Planning - modifies traditional MVO and accommodates for behavioral finance. The financial asset portfolio is dividend into risk buckets:
1. Personal Risk - cash, money market funds, personal residence is included
2. Market Risk - fixed income and equity market portfolio
3. Aspirational - concentrated positions etc
Primary Capital = Personal Risk Bucket + Market Risk Bucket
Surplus Capital = Aspirational Risk Bucket
Estate Planning Concepts:
Human Capital = Net Employment Capital = Present Value of Income Generated Over Lifetime
Core Capital = Amount of assets needed to meet all the individual's liabilities + reserve for unexpected needs
Excess Capital = Total Assets (financial + human capital) - Total Liabilities (financial and non-financial)
We can use mortality table or monte carlo simulation to estimate core capital
Notice that if a man with all the same characteristics as a woman but who is likely to live less, his core capital is likely to be less
1. Personal Risk - cash, money market funds, personal residence is included
2. Market Risk - fixed income and equity market portfolio
3. Aspirational - concentrated positions etc
Primary Capital = Personal Risk Bucket + Market Risk Bucket
Surplus Capital = Aspirational Risk Bucket
Estate Planning Concepts:
Human Capital = Net Employment Capital = Present Value of Income Generated Over Lifetime
Core Capital = Amount of assets needed to meet all the individual's liabilities + reserve for unexpected needs
Excess Capital = Total Assets (financial + human capital) - Total Liabilities (financial and non-financial)
We can use mortality table or monte carlo simulation to estimate core capital
Notice that if a man with all the same characteristics as a woman but who is likely to live less, his core capital is likely to be less
No comments:
Post a Comment