Question: “Complete the following financial information...”
This Financial Means question (along with the Return/Volatility Comfort and Investment Knowledge questions) is used by the tool to recommend a prudent maximum for Specialty Specialty investments are smaller cap investments, usually dedicated to a single sector or market, aggressively managed, with relatively high volatility. investments. It is another measure that indicates how conservative or aggressive we can be with our advice, while remaining within a prudent basic portfolio structure.
Financial means is determined using the investor's basic financial information for:
Net Liquid Assets (Liquid Assets less Current Liabilities)
Liquid Assets include chequing, savings, money market accounts and mutual fund investment accounts and, short-term and redeemable term deposits.
Current Liabilities include short-term debt such as lines of credit, leases, credit cards and personal loans.
Net Fixed Assets (Fixed Assets less Fixed Liabilities)
Fixed Assets include real estate, vehicles, RRSPs and other less liquid assets.
Fixed Liabilities include mortgages and long term loans.
Gross Annual Income
Annual Expenses
Annual Savings
This gives us a measure of financial means available to the investor. It also indicates how conservative or aggressive we can be with our advice, while remaining within a prudent basic portfolio structure.
Financial means is calculated by dividing the total of the net liquid assets plus 1/2 the net fixed assets by the annual expenses:
net liquid assets + 1/2 net fixed assets
annual expenses
The rationale behind the ratio is that current assets are readily available for covering expenses whereas liquidating fixed assets will takes longer or might result in selling at a loss.
The financial means ratio is used to determine a basic prudent Core and Specialty mix as shown in the following table.
|
Financial Means |
Basic Core/Specialty |
|
|
Core |
Specialty | |
|
< .5 |
90% |
10% |
|
.5 - 1 |
80% |
20% |
|
1 - 2 |
70% |
30% |
|
2 - 3 |
60% |
40% |
|
3 - 4 |
50% |
50% |
|
> 4 |
40% |
60% |
These are then adjusted to determine the Recommended Maximum Specialty allocation based on the investor's:
This recommendation is displayed on the "Allocate to Core and Specialty Sectors" screen in a custom portfolio.