Question

Using your client's information and what you have learned in this course, develop an investment policy statement for your client, offer recommendations for the client's portfolio, and provide a justification for the recommendations presented. The policy statement should be 500-750 words and must include the following information:

1. A detailed explanation of the investment policy statement, including the investment objectives for the portfolio, based on the unique needs and preferences of the client.
2. Description of any investment constraints, liquidity needs, and the client's time horizon.
3. A justification of each of the investment recommendations you will make to the client
4. Client Information:

   58-year old female, widowed, employed, Monthly free cash after expenses of about $2,000.

   About $250,000 in retirement money in 401 (k).

   Grown-up children, 2 grand- children.

   Modest house fully paid off.

   Wants to have a decent retirement to start between 66-68.

   Wants to leave some money for grandchildren’s colleges.

   $150,000 Life insurance policy whole life.

Answer 1

Answer: An Investment Policy Statement (IPS) differ from company to company and there is no law governing the guidelines to make the statement. The following is just an illustrative IPS

Name of Investment Company

Investment Policy Statement for Client Name

Executive Summary:

Client Name, Individual Investor, age 58

Portfolio: Individual, Taxable

State: Mention Name of state

Tax ID: xxx-xx-xxxx (Mention ID)

Current Assets: $2,000 p.m. free cash and about $250,000 in retirement

Return Goal: (Mention here)

Objectives:

• Long-term growth and capital preservation
• Risk profile: Conservative
• Time horizon: Greater than 5 years
• Short-term liquidity needs: None
• Long-term rate of return expectation: Mention here (based upon historical rates of return)

Financial Advisor Duties and Responsibilities:

• Fiduciary, non-biased third-party charged with helping clients meet long-term financial goals.
• Confer with client to create asset allocation.
• Select assets in accordance with asset allocation providing sufficient diversification of risk and returns.
• Control and report all investment costs.
• Monitor all investment options and portfolio custodian. (Custodian is responsible for safekeeping of client’s assets)
• Value all portfolio holdings on a regular basis.
• Provide monthly reports that include securities, cash flow, income, and the monthly change in value.

Portfolio Selection Guidelines:

In general, long term investment performance is determined by Asset Performance. Historically, stock assets offer higher rates of return along with greater volatility. Fixed assets generally yield lower rates of return, lower correlation with equities and less risk. Diversification across asset geography and size is recommended.

Based on the client’s conservative risk profile, the portfolio asset allocation will be 40% stock assets and 60% fixed.

The individual composition of holdings will be selected from index funds and exchange-traded funds from the following asset classes:

Equity

• U.S.
• High-Dividend
• Value
• Small Cap
• International, including developed and developing markets

Fixed

• U.S. Bonds
• Corporate Bonds
• Government Bonds
• High-Yield Bonds
• Real Estate Investment Trusts (REIT)
• Global Bonds
• Global REITs

Rebalancing of Asset Allocation:

According to data from Vanguard, there is no universally agreed upon asset allocation. Neither is there data to recommend rebalancing more frequently than annually. Thus, the portfolio will be rebalanced annually, while attempting to minimize the tax consequences of asset sales.

Performance Monitoring:

Each index mutual fund or exchange-traded funds’ returns will be compared with their related benchmark. Any deviation from that benchmark will be evaluated and discussed annually. The holdings will also be compared with peer group funds.

The parameters for selling a fund due to poor performance include one year of greater than 1% deviation from the benchmark and/or falling in the bottom half of the cohort fund group.

Costs will be monitored annually to ensure that total costs do not surpass 1% of all investable assets.

Annually, at a minimum, the overall portfolio will be monitored to consider whether initial goals are in place or have changed. Performance and fees will also be included in this conference. Together, Mr. Martinez and the advisor will determine the future portfolio direction.