FINM2003 Study Guide - Final Guide: Risk Aversion, Human Capital, Cfa Institute
Investment Policy and the Framework of the CFA Institute
Making Investment Decisions
The CFA’ s investment framework- 3 stages
1. Planning or defining the inputs required to make investment decisions
a. Define objectives and constraints
b. Formulate policy statement
c. Develop capital market expectations
d. Determine asset allocation
2. Execution or making asset allocation and security selection decisions, construct the
portfolio
a. Asset allocation and portfolio optimisation
b. Security selection
c. Implementation and execution
3. Feedback or monitoring
a. Monitoring
b. Rebalancing
c. Evaluate performance
Investment Objectives
- Assess how much risk to pursue returns
- May complete a questionnaire to ascertain the return requirement and risk tolerance
- Young people may be more resilient and willing to take on more risk
- Mutual funds may have variable return and risk tolerance
- Pension funds may have assumed actuarial rate of return and payout dependent for
risk tolerance
- Bank investor may have interest spread return requirement and variable risk tolerance
Constraints
- Limit the range of assets for investments and relate to
oLiquidity
oThe investment horizon- how long investors plan to hold the assets
oRegulations- limiting behaviour of investment professional and institutional
investors – prudent investor rule (not allowed to go against wishes of clients
and can’t use investor’s money for other purposes)
oTaxation
find more resources at oneclass.com
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Document Summary
Investment policy and the framework of the cfa institute. Implementation and execution: feedback or monitoring, monitoring, rebalancing, evaluate performance. Assess how much risk to pursue returns. May complete a questionnaire to ascertain the return requirement and risk tolerance. Young people may be more resilient and willing to take on more risk. Mutual funds may have variable return and risk tolerance. Pension funds may have assumed actuarial rate of return and payout dependent for risk tolerance. Bank investor may have interest spread return requirement and variable risk tolerance. Income and capital gains on investments can give rise to tax liabilities and investment performance is measured after tax: other specific needs- like preference for companies. Policy statements an ips guides the investment process, assist in the development and implementation of an investment program. The procedure for making asset allocation decisions. Who is accountable for various aspects of the investment management process.
