In May 2001, the “Gesetz zur Reform der gesetzlichen Rentenversicherung und zur Förderung eines kapitalgedeckten Altersvorsorge Vermögens (AvmG)” was passed by the German legislation. The target of this law is to encourage the private retirement provision with additional governmental extra pay or with tax deductions in terms of special expenses.
The purpose of this paper is to give an overview of some possible strategies for the capital spending in investment funds. These strategies are both partly static and dynamic.
A basic method to measure the risk of such investment strategies is the volatility.
Another approach of measuring risk is explained in chapter 2 and then used in chapter 3 for a simulation. This simulation considers the nominal capital maintenance which is required by the German legislation to receive the governmental relief (encouragement). Furthermore in this chapter an analysis with the objective of the real capital maintenance is held.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 2. Risk of an Investment
- 2.1 Definitions of Risk
- 2.2 Methods for the Determination of the Shortfall Risk
- 3. Results of the Simulation
- 3.1 The Investigation Field
- 3.2 Benchmark: nominal Capital Maintenance
- 3.2.1 Group A
- 3.2.2 Group B
- 3.2.3 Group C
- 3.2.4 Group D
- 3.3 Benchmark: real Capital Maintenance
- 3.3.1 Group A
- 3.3.2 Group B
- 3.3.3 Group C
- 3.3.4 Group D
- 4. Conclusions
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to provide an overview of investment strategies for capital spending in investment funds, incorporating both static and dynamic approaches. The primary focus is on risk assessment, specifically utilizing shortfall probability as a key metric. The paper uses a simulation to analyze investment performance under different benchmarks, considering both nominal and real capital maintenance as required by German legislation.
- Investment Strategies for Retirement Provision
- Risk Measurement and Shortfall Probability
- Simulation of Investment Performance under Different Benchmarks
- Nominal and Real Capital Maintenance
- Application of Risk Management to Retirement Planning
Zusammenfassung der Kapitel (Chapter Summaries)
1. Introduction: This introductory chapter sets the stage by discussing the 2001 German legislation aimed at encouraging private retirement provisions. It highlights the paper's objective: to analyze various capital spending strategies within investment funds, emphasizing both static and dynamic approaches. The chapter briefly introduces the concept of volatility as a risk measurement method and foreshadows the use of shortfall probability as a central risk assessment tool in the subsequent simulation analysis.
2. Risk of an Investment: This chapter delves into the crucial concept of risk in investment decisions. It begins by differentiating between uncertainty and risk, clarifying the specific definition of investment risk as the potential failure to meet a predetermined financial target. The chapter then introduces different perspectives on risk measurement, starting with volatility and moving on to a more detailed exploration of shortfall probability (SP), a key metric representing the probability of falling below a predefined minimum yield. Several prominent researchers and their contributions to understanding and quantifying shortfall risk (Roy, Kataoka, Telser) are referenced, highlighting different approaches to defining and optimizing investment strategies based on minimizing or managing this shortfall probability. The chapter lays the groundwork for the quantitative risk assessment methodologies applied in later chapters.
Schlüsselwörter (Keywords)
Life-cycle investing, retirement planning, investment strategies, risk management, shortfall probability, capital maintenance, simulation, German pension reform, volatility, investment funds.
Frequently Asked Questions: Investment Strategies for Capital Spending in Investment Funds
What is the main topic of this paper?
This paper analyzes investment strategies for capital spending in investment funds, focusing on risk assessment using shortfall probability as a key metric. It uses a simulation to compare investment performance under different benchmarks, considering both nominal and real capital maintenance as required by German legislation. The paper incorporates both static and dynamic approaches to investment strategies.
What are the key themes explored in the paper?
Key themes include investment strategies for retirement provision, risk measurement and shortfall probability, simulation of investment performance under different benchmarks (nominal and real capital maintenance), and the application of risk management to retirement planning. The paper also examines the impact of the 2001 German legislation aimed at encouraging private retirement provisions.
What is shortfall probability, and why is it important?
Shortfall probability (SP) is a key risk metric representing the probability of an investment falling below a predefined minimum yield. The paper uses SP as a central tool for assessing the risk of different investment strategies. Several researchers' contributions to understanding and quantifying shortfall risk are referenced, highlighting different approaches to defining and optimizing strategies based on minimizing or managing this probability.
What benchmarks are used in the simulation?
The simulation analyzes investment performance under two main benchmarks: nominal capital maintenance and real capital maintenance. Each benchmark is further divided into four groups (A, B, C, and D), presumably representing different investment strategies or portfolios. The specific characteristics of these groups are not detailed in this preview.
What types of investment strategies are considered?
The paper examines both static and dynamic investment strategies. While the specifics of these strategies aren't detailed in the preview, the simulation results are organized by the benchmarks (nominal and real capital maintenance) and the four groups under each benchmark.
What is the role of German legislation in this research?
The paper explicitly references the 2001 German legislation encouraging private retirement provisions. This legislation likely influences the choice of benchmarks (nominal and real capital maintenance) used in the simulation and the overall focus on retirement planning.
What are the main chapters of the paper?
The paper includes an introduction, a chapter on investment risk (including definitions and methods for determining shortfall risk), a chapter on the simulation results (including separate sections for nominal and real capital maintenance benchmarks, each with four subgroups), and a concluding chapter.
What are the keywords associated with this paper?
Keywords include life-cycle investing, retirement planning, investment strategies, risk management, shortfall probability, capital maintenance, simulation, German pension reform, volatility, and investment funds.
- Quote paper
- Benjamin Wolf (Author), 2002, Life-Cycle Investing, Munich, GRIN Verlag, https://www.grin.com/document/25232
