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Portfolio Selection in Goals-Based WealthManagement

2011; Euromoney Institutional Investor; Volume: 14; Issue: 1 Linguagem: Inglês

10.3905/jwm.2011.14.1.055

2374-1368

Hungjen Wang, Anil Suri, David Laster, Himanshu Almadi,

Financial Literacy, Pension, Retirement Analysis

The authors propose an incremental step toward combining the insights of modern portfolio theory with some of the propensities documented in the literature on behavioral finance. They develop a goals-based wealth management approach that finds a specific subportfolio to address each of an investor's goals and then derive the least-cost solution. They relate the closed-form solution for the one-period, two-asset problem to the mean–variance efficient frontier. Consistent with the "lockbox separation"concept proposed by Sharpe, they demonstrate that a multiperiod goal, such as a retirement plan, can be viewed as a collection of single-period problems. Next, they extend their result to a market with many assets, where portfolios are exogenously given. Finally, they illustrate the approach with a case study with multiple asset classes and multiperiod goals. TOPICS: Portfolio theory , in wealth management