Investment Objectives and Constraints
KNOWLEDGE EXPECTED OF: QAFP® Professionals
Highest Knowledge Level: Evaluation
Knowledge Levels and Associated Verbs
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Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
|
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
|
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
|
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
|
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
|
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
|
Compare
To note the similarities and differences between two or more things
|
Estimate
To determine an approximate value for
|
Calculate
To find the value using mathematics
|
Convert
To change from one form or purpose to another
|
Evaluate
To reach a conclusion or make a through careful study
|
Interpret
To give the meaning of / to construe or understand / to translate orally
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Hold cursor over or click on each term to read its definition.
- Explain investment objectives, such as:
- Preservation of capital
- Preservation of purchasing power
- Liquidity of capital
- Income stream
- Growth of capital
- Explain investment constraints, such as:
- Time
- Liquidity
- Legal and regulatory
- Tax
- Personal attitudes
- Unique circumstances
- Define time horizon.
- Explain that an individual may have multiple time horizons.
- Identify the time horizon(s) until an investment needs to be liquidated and/or used for income.
- Determine the elements that impact an individual’s investment risk profile:
- Risk Tolerance
- Willingness to accept risk (personal attitudes towards fluctuations in investment value)
- Risk Capacity
- Ability to accept risk (financial capacity to sustain fluctuations in investment value)
- Risk Need (minimum amount of risk that must be incurred to earn the expected return which will achieve goal).
- Determine how each of these factors may impact the risk tolerance and risk capacity of an individual:
- Time horizon
- Investment objective
- Importance of investment to achievement of goal
- Personal attitudes
- Tolerance for downside volatility
- Net worth
- Amount of income
- Stability of income
- Evaluate an individual's risk capacity for a specific goal.
- Determine the elements that impact investment suitability for an individual.
- Previous investment experience,
- Level of financial knowledge; and
- Prior investment behaviour
- Explain that an individual has a single risk tolerance.
- Explain that an individual may have different risk capacities for different goals.
KNOWLEDGE EXPECTED OF: CFP® Professionals
Highest Knowledge Level: Evaluation
Knowledge Levels and Associated Verbs
|
Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
|
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
|
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
|
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
|
||||||
|---|---|---|---|---|---|---|---|---|---|
|
Define
To state exactly the meaning of
|
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
|
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
|
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
|
Compare
To note the similarities and differences between two or more things
|
Estimate
To determine an approximate value for
|
Calculate
To find the value using mathematics
|
Convert
To change from one form or purpose to another
|
Evaluate
To reach a conclusion or make a through careful study
|
Interpret
To give the meaning of / to construe or understand / to translate orally
|
Hold cursor over or click on each term to read its definition.
- Explain investment objectives, such as:
- Preservation of capital
- Preservation of purchasing power
- Liquidity of capital
- Income stream
- Growth of capital
- Explain investment constraints, such as:
- Time
- Liquidity
- Legal and regulatory
- Tax
- Personal attitudes
- Unique circumstances
- Define time horizon.
- Explain that an individual may have multiple time horizons.
- Identify the time horizon(s) until an investment needs to be liquidated and/or used for income.
- Determine the elements that impact an individual’s investment risk profile:
- Risk Tolerance
- Willingness to accept risk (personal attitudes towards fluctuations in investment value)
- Risk Capacity
- Ability to accept risk (financial capacity to sustain fluctuations in investment value)
- Risk Need (minimum amount of risk that must be incurred to earn the expected return which will achieve goal).
- Determine how each of these factors may impact the risk tolerance and risk capacity of an individual:
- Time horizon
- Investment objective
- Importance of investment to achievement of goal
- Personal attitudes
- Tolerance for downside volatility
- Net worth
- Amount of income
- Stability of income
- Evaluate an individual's risk capacity for a specific goal.
- Determine the elements that impact investment suitability for an individual.
- Previous investment experience,
- Level of financial knowledge; and
- Prior investment behaviour
- Explain that an individual has a single risk tolerance.
- Explain that an individual may have different risk capacities for different goals.
