need help creating an Investment Policy Statement for a hypothetical investor. Hypothetical info and directions attached.
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Construct an Investment Policy Statement (IPS) for an individual. Recall that the basic IPS outline
consists of return and risk objectives and constraints. We will examine a hypothetical investor and
try to construct an IPS for this individual. The IPS is a valuable process for both the client and
portfolio manager. The IPS must be consistent with the individual’s objectives and constraints.
Therefore, it is an important communication tool that helps ensure the client and manager are aware
of the specific needs and constraints of the client.
Sue Smith is 65 years old and is mentally well, but physically suffering from a degenerative disease.
Unfortunately, she is expects to live for only a few more years. Sue’s major expenses are related to
medical expenses. She no longer goes out and therefore her other expenses are small and
predictable. She also likes to contribute to charities and provide gifts to her son, George, and his
family with any excess income. George Smith is 45 years old and married. Sue Smith describes
George as somewhat irresponsible but a good father, husband, and son.
Sue grew up with stories
of the Depression from her parents and therefore has a very conservative investment perspective.
George Smith is currently unemployed and helps out around the house looking after three children.
Two of his children are in high school preparing for college and his oldest son is in college. His wife
is also unemployed and is a homemaker. George is an aggressive investor and believes investors
can double their money every five to six years. In addition to helping his children finance college, he
hopes to give them money to start up their own businesses after college. George Smith and his
family currently live on $100,000 of income after taxes.
This income is primarily from investment
income from wealth inherited when George’s father passed away and gifts from his mother Sue.
George is seeking investment advice to increase his portfolio wealth so that he is less dependent on
his mother. The following two exhibits summarize the current financial positions of Sue Smith and
George Smith. In addition to the information in Table 2.2, George Smith has an additional $250,000
that is not listed under cash, that he wants to invest as well.
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