Sept 03 Qn 4

[vikky]

SORRY ABOUT THE QUESTION NUMBER ..ITS APRIL 2004 QN 7


I am really worried after I read the answers for each investor category.What I tried to do was view SOUNDER TRACTORS for each of the investor categories and came up with a list for each.
For eg for part a my answer included nature timing term and uncertainty of liabilities ,sponsor /trustees risk app ,size of existing assets funding levels ,risk app of sponsors and trustees of scheme,liquidity requirements,diversification needs etc
The revision booklet answer just states
diversification
maxmise fund at retirement subject to risk appetite
lifestyling prior to retirement and take advantages of tax breaks if avlbl
!!!!
I have very similar problems with the other parts as well!!!
Am not too sure where am I going wrong.
help!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

[ChasingAces]

Hi, I'm also studying for CA1 but here's my take on this question.

I think the main part of this question was to get at why the investment strategies would be different for each of these investors - rather than just a full list of factors for each using the acronym. So what are their liabilities/income and their other aims of investing (like maintaining competitive premiums for the general insurance company), what are the key risks (falling bond yields/rising annuity rates for the pension plan), anything else specific to each investor (tax breaks for charities) etc.

Also there are 15 marks for the full question so only 3 marks for each part assuming it's split equally. I'd take this to mean that you don't need too much detail but rather that you need to pick out the most important points for each.

 

[td290]

Still not sure what question you're looking at. Did CA1 exist in 2004? Are you looking at one of the 300 series?

 

[Charlie]

I agree with ChasingAces that it's about getting the most IMPORTANT factors down.

In the specific case of part (a), I think you need to be really careful about who the investor is here - it's an individual who is contributing into their personal pension. So this might be you setting up a personal pension and making investment choices for your contributions.

Do you think about the sponsor/trustees? No - there is no "sponsor" for a personal pension (well, you're the sponsor!) and you don't care whether the trustees are risk averse or not - it's you who's making choosing which fund to invest in.

You do care about the "size of your existing assets" to some extent (the more you have in savings now, the more risk you will be able to take with your investment choices - if you're that way inclined) but I don't know why you'd talk about a funding level (surely there isn't really going to be a funding level for a personal pension ... or are you talking about your funding level?!).

And why do you need liquidity? Well, that's the point about lifestyling isn't it? (But by talking about lifestyling rather than liquidity it's framing it from the individual's point of view rather than the fund managers' point of view, which is what the question has asked for.)

So I think the key to part (a) is to put yourself in the position of the individual: what do they care about?

Well, they will want to take some risk to maximise returns (depending on their risk appetite and their age), but they won't want to put all their eggs in one basket, so they'd probably choose a range of funds to diversify. And we all love tax breaks, so if there are some specifically available, then let's make use of them!

 

[vikky]

Thank you for the replies.
@Charlie-Cheers....Got some idea where my thinking went awry.