Module 4 · Portfolio Management

Basics of Portfolio Planning and Construction

EN: Investment Policy Statement (IPS), risk and return objectives, and constraints (RR-TTLLU).
VN: IPS, mục tiêu rủi ro/lợi suất, các ràng buộc.

1. The IPS — Why It Matters Concept

About: Written agreement defining objectives, constraints, asset allocation, review process. Disciplines decisions; reduces emotional reactions during volatility.Tóm tắt: Văn bản định nghĩa mục tiêu, ràng buộc, allocation. Kỷ luật quyết định, giảm cảm xúc.

The Investment Policy Statement is a written agreement between client and manager defining objectives, constraints, asset allocation policy, and review process. Disciplines decisions and reduces emotional reactions.

2. Objectives — Risk & Return Core

About: Risk: willingness (psychology) AND ability (financial) — use the more conservative. Return: required (must) and desired (want); state nominal, after-fees, after-tax.Tóm tắt: Risk: willingness vs ability — chọn cái thận trọng hơn. Return: required và desired.

Risk objective Willingness (psychological) AND ability (financial) to take risk. Use the more conservative.
Return objective Required (must) and desired (want); stated nominal and gross/net of fees, taxes, inflation.

3. Constraints (TTLLU) Core

About: Time horizon, Taxes, Liquidity, Legal/regulatory, Unique. Mnemonic captures all common constraints. Each affects allocation.Tóm tắt: T-T-L-L-U: Time, Taxes, Liquidity, Legal, Unique.

Mnemonic: T-T-L-L-U

T Time horizon — short, intermediate, long; multi-stage common.
T Taxes — capital gains, income, estate.
L Liquidity — required cash flows.
L Legal/regulatory — fiduciary, prudent investor.
U Unique — ESG preferences, concentration, family obligations.

4. Strategic Asset Allocation (SAA) Concept

About: Long-term policy mix from IPS. Reviewed annually. TAA makes shorter-term shifts within bands set by IPS.Tóm tắt: SAA dài hạn từ IPS, review hàng năm. TAA dao động ngắn hạn trong band.

Long-term policy mix derived from IPS objectives. Typically reviewed annually. Tactical asset allocation (TAA) makes short-term shifts around SAA based on market views.

Practice problem Practice

Practice problem

Client requires withdrawal of $50,000 within the next 6 months for a home purchase. Which IPS constraint is most affected?

Show solution

TTLLU mnemonic.

Imminent cash need = liquidity constraint.

Also affects time horizon for that portion.

Liquidity constraint (and short time horizon for the $50k)