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IBBC CAPITAL ACADEMY / 2027

Separate spending needs from willingness to take risk

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Calculate recurring spending as a percentage of total assets and a simplified nominal target preserving purchasing power.
  • Explain treatment of the one-time tuition payment.
  • Distinguish willingness and ability to take risk using the case facts.

Draft · approximately 35 minutes, excluding further revision.

Case facts

A fictional family has investable assets 5 million, an annual spending shortfall of 120,000 after other income, and a one-time tuition payment of 100,000 due next year. Expected inflation is 2.5%; the stated tax and fee drag is 1% of beginning assets per year. The family requests that the tuition amount be reserved in a matching-currency liquid instrument. A member is enthusiastic about taking risk, but the family depends on these assets for essential spending.

Decision framework

A spending-rate calculation is an input to planning, not a promise of a sustainable withdrawal rate. Set aside dated short-horizon liabilities before assigning long-horizon risk. Distinguish psychological willingness from financial ability to absorb losses; a concentrated or illiquid allocation can conflict with essential spending even if one member is comfortable with volatility. Family governance and documentation matter when preferences differ.

Formula and assumptions

Decision → calculation/evidence → case-specific reason → limitation

Compare with the model response after drafting
  1. Recurring shortfall rate=120,000/5,000,000=2.4%. Using a simplified real spending target, nominal after-cost target=(1.024)(1.025)−1=4.96%; adding the stated 1% beginning-asset drag gives 5.96% before that drag. This is a planning approximation, not a guaranteed achievable return.
  2. Reserve the separate 100,000 tuition liability in a matching-currency liquid allocation; do not repeat it every year in recurring spending. Recalculate long-term targets for the remaining asset base in a detailed plan.
  3. Enthusiasm indicates willingness, while dependence on essential spending and a near-term payment constrain ability. Resolve the conflict through documented family objectives and stress tests before selecting portfolio risk.

Errors to catch

  • State a recommendation only after identifying the case constraint and calculation.
  • Rubric results are your self-assessment, not an official or AI grade.

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Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.