Question

Cato Boldon 32, CEO and founder of Optimum Athletics, reside in the island of Trinidad and Tobago with his wife and children. The business has been in operation since 2008. He decided to start the business during the financial crisis that hit the world in 2008 due his passion for track and field. The company has been experiencing a loss for the last two years and cash flows are beginning to tighten. A major customer owes the company US$100,000 for almost a year. He gets a salary of 5 million per annum from the business. He has savings of US$ 100,000 and his looking to invest to secure his financial future. He wants to enjoy both safety and capital gains. The government of Trinidad is currently in discussion on whether to grant small business in the manufacturing industry an incentive package. Boldon is considering his options. Should I sell the business or go back to management in a corporate enterprise. He has a Masters of Science of 35 Degree in Kinesiology. His two children are aged 9 and 13 yrs old respectively and his wife is six months pregnant. His wife recently completed her Law Degree and is looking to be called to the bar in Trinidad and Tobago in the next six months. Her husband had been contributing to her alumni Scholarship Fund for the last 5 years and wishes to continue. His father 60, is not doing well. He was recently diagnosed with diabetes. Boldon recently found out that his father has limited insurance coverage. Boldon is concerned about his retirement and his ability to finance his children education. He wanted the business to be part of his pension plan as he wanted the company to be listed on the Trinidad Stock Exchange. He had to use the deposit that he had saved for his home ownership to fix the family car that was recently damaged by hurricane Irma. As Financial Advisors you are to:

You are required to:

1. Prepare an Investment Policy Statement for Mr. Boldon.

Answer 1

INVESTMENT POLICY STATEMENT OF MR. CATO:

• objectives/goals :

1) children education 2) retirement needs of Mr, CATO. 3) medical expenses of his father 4) home ownership

children education: Mr. CATO has two children aged 9 and 13 years and his wife is 6 months pregnant. he has to maintain sufficient funds so that he can fund the education of his children.

2) due to no savings left with him, he has to generate enough funds for his retirement needs.

3) he has to take care of the medical needs of his ailing father as the insurance coverage is limited.

4) he has plans to buy a home , savings for which was utilized in repairing of car.

• the investment horizon: the investment is long term. one period will be till retirement as he is just 32 years of age and the next period will be after the retirement.
• the risk profile : the risk profile of Mr. CATO is dependent on his ability and willingness to take risks. as per his nature it seems he is willing to take risks as he wants capital gains. but at the same time he wishes for safety as well. seeing the number of dependents, the debts which are yet to be paid, the poor financial performance of his company, the medical of his father, and the education of his children and his retirement needs, his ability to take risks is very low.
• asset allocation: as per his risk profile, his age he can invest in equity as he is quite young, but we should keep the level to a minimum as the number of dependents, debts and his needs are a lot.
• around 30% if his portfolio allocation can be made to equity rest should be allocated to fixed income.