How should multi-stage time horizons be described in the IPS?

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AcadiFi · Accepted Answer

Time horizon in the IPS is often multi-stage — the client has several distinct investment periods with different risk-return profiles. CFA curriculum handles this by: 1. Listing each stage with start, end, and objective. 2. Identifying the shortest stage with a critical goal as the binding constraint for the lowest-risk sleeve. 3. Allowing longer stages to tolerate more risk because of their recovery time. Stages typically look like: - Stage 1: accumulation (working years) — longer horizon, higher risk capacity. - Stage 2: transition (near-retirement, college funding) — shorter horizon, gradual de-risking. - Stage 3: distribution (retirement, drawdown) — ongoing needs, moderate risk. - Stage 4: legacy / bequest — indefinite horizon, aligned with next generation. ```mermaid flowchart LR A[Today] --> B[Stage 1
Accumulate] B --> C[Stage 2
College] C --> D[Stage 3
Retirement] D --> E[Stage 4
Bequest] ``` A concrete example: Jasper Korolev, age 40, has a $1.1M portfolio. Stage 1: years 0-10 to save for kids' college ($200K needed at year 10). Stage 2: years 10-22 additional wealth accumulation. Stage 3: years 22+ retirement. IPS write-up: 'Client has a multi-stage time horizon. Stage 1 (0-10 years) with critical college funding need. Stage 2 (11-22 years) continued accumulation. Stage 3 (22+ years) retirement distribution. The binding short-term constraint is the college goal, requiring an approximately $150K liability-matched sub-portfolio in stable assets. The remaining $950K can target long-horizon growth.' Asset allocation response: run a goal-based or liability-driven approach where the college goal is matched with a laddered bond portfolio and the growth portfolio is 70/30 or 80/20 equity/bond. As time passes, the college sub-portfolio is drawn down, and the overall allocation gradually de-risks approaching retirement. CFA exam: always identify the binding stage and relate it to asset allocation recommendations.

How should multi-stage time horizons be described in the IPS?

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