Investment Management and Financial Planning
Planning framework
Understand the investment policy statement, asset allocation, risk tolerance, time horizon, liquidity needs, and suitability. Core concepts include diversification, correlation, standard deviation, beta, modern portfolio theory, the efficient frontier, rebalancing, capital market assumptions, and Monte Carlo analysis. Financial planning fundamentals include present and future value, inflation, retirement and education funding, insurance needs, and cash-flow planning.
Fiduciary investment lens
For trusts, the prudent investor rule requires total-return thinking and impartiality between income and remainder beneficiaries. A long-horizon trust may hold equities even if the income beneficiary wants cash flow; a short-horizon trust may need liquidity and lower volatility. Suitability for individuals considers the client's objectives, constraints, and capacity for loss.
Traps
Past performance is not predictive; high return does not mean low risk. Diversification reduces unsystematic risk but not market risk. Correlation matters more than the number of holdings. Questions may confuse risk tolerance with risk capacity, or assume a trust must maximize income. Rebalancing is a risk-control discipline, not a return guarantee.
Worked example
A client age 70 has a 15-year horizon and needs $40,000 annually from a $1 million portfolio. A 60/40 allocation may be reasonable, but the plan should stress-test a market decline and account for inflation. If withdrawals equal 4%, a severe early loss can impair sustainability; holding a cash reserve and rebalancing within bands can reduce sequence risk.
Rule of thumb
Set allocation bands, such as plus or minus 5 percentage points, and rebalance when breached rather than on emotion.