Simulation of portfolios and risk budget analysis
AssigneeAdvisor Software, Inc.
InventorsNicolo G. Torre, Andrew T. Rudd
Life of this patent
Estimating the term…
Abstract
The present disclosure relates to household portfolio simulation and analysis to provide retirement income. In particular, it discloses advanced technologies for modeling, simulation and analysis of potential economic futures, as applied to household retirement prospects. Improved modeling may capture factors such as concrete objectives of participants' priorities among objectives, risk adversity and starting conditions that impact tax consequences of transactions. Improved modeling may address consistency among similar factors, tax consequences in simulation periods and transactions in real estate and private investments. Improved analyses may apply a margin of safety and/or risk budget analysis to a household portfolio to produce a meaningful presentation.
Claims10
A method of summarizing household resources and claims through a future lifetime as of a particular date, thereby enabling a household to balance the claims against the resources, the method including:
- accessing a collection of data structures in computer readable memory, including
- a plurality of financial asset objects adapted to represent positions in stocks and bonds, including risk, return, allowable transaction types, cash flows, and tax treatment,
- at least one home asset object being adapted to represent a home ownership, including risk, return, a preference for disposition of the home, one or more cash flows, and tax treatment,
- at least one human capital object adapted to represent an employment prospect of a household member, including at least future job-related earnings, partial retirement and full retirement,
- at least one miscellaneous income object adapted to represent entitlements to a social security benefit or a pension benefit, including at least income from the entitlements, indexing of the entitlements over time and survivor benefits payable from the entitlements,
- a plurality of household expense objects adapted to represent various household expenses, one of the household expense objects including at least expense amounts and expense timing, a desirability rating for a particular household expense and alternative levels of funding for the particular household expense;
- and
- evaluating using a processor, for a particular date, actuarial present value balances of at least the employment prospect, the entitlements, the household expenses, and tax consequences of the employment prospect and tax-deferred gains in the home ownership and the positions in stocks and bonds;
- and
- summarizing for the particular date values of certain resources and claims, including the positions in stocks and bonds, the home ownership and deferred taxes on gains in the positions and the home ownership, and the balances of other resources and of the claims, organized into groups of the resources and the claims, wherein
- a base level of living expenses, the tax consequences and the mortgage payments are grouped, thereby representing obligations, and other of the household expenses are organized by the desirability ratings of the household expenses, thereby representing at least primary and secondary goals among the household expenses,
- the various household expenses are subject to different discount rates when calculating the actuarial present value balances, with lower discount rates applied to the obligations than to the secondary goals, and and a residual (or deficit) of the resources exceeding the claims is reported, thereby reflecting wealth building.
A computer-implemented method of summarizing household resources and claims through a future lifetime as of a particular date, thereby enabling a household to balance the claims against the resources, the method including:
- retrieving from computer readable memory data regarding resources and claims for a household, the resources including
- stocks and bonds,
- a home,
- human capital, which means an employment prospect for a household member including at least future job-related earnings and desires for partial / full retirement of the household member, and
- retirement benefits, which include at least social security, and the claims including
- household expenses, with desirability ratings for particular household expenses and alternative levels of funding for at least some of the particular household expenses, and
- taxes on the job-related earnings and tax-deferred gains in the ownership of the home and the stocks and bonds;
- evaluating using a processor, for a particular date, actuarial present value balances of at least the human capital, the retirement benefits, the household expenses, tax consequences of the human capital and tax-deferred gains in ownership of the home and the stocks and bonds;
- and
- summarizing present values of the resources and claims in a summary for the particular date, the summary organized into groups of the resources and the claims, wherein
- obligations are separated from discretionary expenses, the obligations including at least mortgage payments on the home, and tax consequences as they accrue,
- the discretionary expenses are grouped into at least two groups of primary and secondary goals, based on their desirability ratings, with the particular household expenses that have alternative levels of funding at different desirability ratings being spread across the groups, and
- a residual (or deficit) of the resources exceeding the claims is reported, thereby reflecting wealth building.
Dependencies are inferred from the claim text.