 All investment planning involves an optimisation problem. How do you allocate assets and manage assets to meet short and long term financial needs while protecting the client from risk and optimising the returns on the portfolio for a given investment style and client risk and performance preferences?
These decision rules are different from the rules that determine the structure and management of a portfolio without financial needs. They determine amongst other things the following. How low risk assets are allocated and structured to protect financial needs against significant risk. How low risk assets are structured to meet financial needs as and when they arise. How central investment strategy for low risk investments is personalised to individual client financial needs and risk preferences. How the central investment strategy and discipline adjusts its equity investment strategy for client yield requirements, risk aversions and performance preferences. For example, how is the allocation to market cap, global markets, growth and or value, defensive or aggressive investments adjusted for the universe of financial needs and risk preferences. While many asset managers do have a one size fits all, this is not necessarily the case.
The optimum balance between equities and fixed interest investments, its relationship with risk aversion and its rebalancing of the portfolio over time.  The application of future surplus income and capital to the portfolio; this can have a significant impact on portfolio planning. How initial investment strategy is adjusted for market and economic valuations and how risk aversion and financial needs affects this decision; some clients coming from cash, some are already invested, others have significant financial needs while others have none. These are all factors which affect not only the initial investment decision but the ongoing management of the portfolio.
The only way investment planning can be effectively managed is through sophisticated systems that automate and dynamise the complex process of personalizing the construction, planning and management of assets to meet financial needs over time. |
