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Propose and defend changes to an asset allocation after a shift in the investor's objectives or constraints

CFA® Level III · Asset Allocation · Asset Allocation with Real-World Constraints · L3.AA.5.c

The idea

Revisions are triggered by changes in goals, constraints or capital market beliefs. Typical cases include a large inheritance, retirement, a new goal, a pension plan closing to new members or freezing benefits, or a change in a foundation's spending rule. Work through what changed: required return, risk capacity, horizon, liquidity, tax, and liabilities. A plan that freezes benefits has a shorter, more certain liability, which argues for a larger hedging portfolio; a retiree losing salary income has less capacity for risk; a windfall may lift capacity but not necessarily willingness. A good justification links each revised weight to a specific changed fact. The trap is revising the allocation in response to market moves instead of investor circumstances.

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