Question

Your client is a 30 year old, married professional with a combined household income of $250,000/yr. The client and their spouse have committed to saving 10 % of their combined income for retirement. Your client also has $100,000 in a standard brokerage account that was inherited. They plan on growing their family to include 2 children, one 5 years from now and the other 5 years after that. They would like to pay for their college educations which they estimate to be $30,000 for the first child and $40,000 for the second child. You assess their risk tolerance and determine that you can be moderately aggressive to start. They have asked you to prepare an investment policy statement outlining how you would approach investing their money. This statement should cover the main points covered in chapter 2 of the textbook that generally fall under these 3 categories: 1) Objectives 2) Investor Constraints 3) Strategies and Policies Please introduce each section by first explaining why that item is important and how you would apply it to this particular client. For example, under Investor Constraints there should be a section on "Horizon". Explain what we mean when we say "Horizon", why it is important, and how it applies to this particular client. You told the client you would have a proposal for them at your next meeting, November 1, 2019.

Answer 1

Answer :

Given data is :

Client age = 30 year old

Household income = $ 250,000 per year

Standard brokerage account of client = $ 100,000

No.of children = 2

First children fee for education = $ 30,000

Second children fee for education = $ 40,000

Goals/Objectives :

• Put something aside for retirement
• Put something aside for school charges for two children adding up to is = $ 30,000 + $ 40,000 =  $70000.

Investor Constraints :

Skyline/Horizon : The family unit pay will keep going for next 25-30 years during which they will contribute henceforth the vast majority of the speculation will have a residency/skyline of 30 years post which they will resign and will exchange their venture for everyday use. Longer the skyline, progressively hazardous the speculation can be as the hazard will be spread crosswise over additional time skyline which will average out.

Methodology/strategies and Policies :

• The couple must spare around at least 30.00% to 35.00% for yearly pay
• Considering the duties as referenced which appears to restricted to $70,000 and the cash for retirement not referenced, It appears the couple will have the option to meet thinking about their salary. Besides, since they are youthful they may might want to go out on a limb for better returns. Possibly a 70% value and 30% obligation will work at first for initial 7 years and afterward progressively can diminish to 40% value and 60% obligation as their hazard resilience decline with age.