Question

i need help in writing a 3pages investment policy statement for Bill and Joyce Owens, it need to include the client profile, recommended investment strategy, Present an allocation that is consistent with the strategy it has to match with the profile, Expecations (which have to get the same return for each of my asset classes), Syntax (has to sound like an investment policy statement)

Client Profile Information: Name: Bill and Joyce Owens Address: 123 Any Street, Heartland, ME Client Story Date: 1.20.2020 FAMILY Bill and Joyce are age 32. At the first meeting we learned that she operates Malta Manufacturing a company that manufactures friction materials for off-road specialty vehicles. They have one child. Tim, age 2 BUSINESS Joyce owns 75% of the manufacturing company, her brother owns 10% and an unrelated employee shareholder holds the other 15%. The company employs 160 people with annual gross revenues of $22 million and annual net income of $4 million. The company has deposits of $1 million and a $2 million variable line of credit. The line is used to purchase seasonal inventory and equipment and is usually fully paid off within six months. There is no other debt on the company. Joyce inherited the majority interest in the company ten years ago. Joyce has focused on paying down debt and updating critical systems within the company and has not taken significant distributions. There is a full proof agreement between the shareholders regarding the future of the company. The company has a loyal seasoned management team that continues to perform above their competition. The management team lacks the financial capacity at this point to purchase the company. The company should remain competitive with a modern plant, updated critical systems and strong management. Joyce plans to start taking distributions and building up an investment account to help pay for retirement. Joyce plans to sell the business outright and spend time traveling. Joyce's CPA is a close friend and advisor. Yet, Joyce does not view him as an expert in estate planning or business valuation. Joyce's CPA does investment management and wants to manage the couple's money. not taken years ago. Joyo six months. Thero of credit. The lion and an between th a modern l cks the financial inagement team up an investme updated critical capacity at this not PERSONAL NET WORTH The company represents 70%+ of Joyce's net worth. Joyce has received prior offers greater than $20 million. Joyce believes the business will be worth twice that when she is 50 and ready to retire. The tax basis is about equivalent to it's current value because there was a step up in basis when Joyce inherited it. Outside of the business, Bill has an investment account worth $2 million. Bill has commercial real estate that generates approximately $150.000 of annual cash flow. Bill and Joyce have 401(k) balances of $250,000 and $500,000 respectively. Their residence and vacation home are worth approximately $2 million. Both like sunny and warm Arizona. INVESTMENT STRATEGY Both of them would describe their style as do-it-yourselfers and have had a good investment outcome until 2008-2009. Their accounts are still down 30% and most of account remains in cash. They are willing to take on significant risks in order to grow their investments and are not concerned about income generation as earnings from the company cover their lifestyle needs. However, they expect to live even better in retirement and will need significant assets to meet their retirement goals. ESTATE PLAN Bill and Joyce have not updated their estate plan in 13 years. As a general goal they want to leave at least $10 million for their children (they plan to have another) and pay for the grandchildren's college costs. Bill and Joyce have a Survivor Universal Life with $1 million of death benefit from a cash value life insurance policy. Neither wants to have their children serve as executor or personal representative. They are ready to meet with an attorney and update documents They have entrusted you to manage $1 million of their portfolio for the next two months and will bring more money over to you if you manage the money within their objectives, guidelines, and constraints.

Answer 1

client profile : our client is 32 years old and she has a 2 years old child. She doesn't mind taking risk because she thinks her retirement life should be better then now and wants to have a comfortable life in her old age. she and her husband plan to have another child and they also want to make fund for their grandchildren's college fees.It is important to note that they bear risk not for immediate earnings but for long-term financial wealth. inspite of her holding 70% in her company She opted for bearing risk because her company's creditors can be paid off without worries and she also has some other assets besides the holdings in the company.

Investment strategy that can be recommended: Considering Joyce's risk bearing ability we could design an aggressive investment policy.
Even though conservative or modarate investment policy can make their investment little more safe by investing considerable part of amount in fixed assets or government bonds or other fixed interest yielding bonds it doesn't suit her objective. But they must also keep in mind that aggressive approach also has its drawbacks.Because when you invest in a high voltality stocks for high income there can also be heavy loss. Even though they concern more about the long term financial wealth voltality of stocks will still be exist we can't assure that in the long run stocks price will always be profitable. So we should also think about the consequences of the aggressive approach the we should carefully invest it in the stocks which yield constant good profit (may not be great) and make our investment little more safe.

Asset allocation :
So as we decided to follow aggressive approach we invest most of her fund say 80% on high trading shares other 20% can be invested in government bonds which gives high interest. considering government bond or other fixed interest bearing investments 10 to 15 percent of earnings is acceptable ( rates are very subjective so i didn't get in to detail) But as for as other 80 percent investment is concerned blue chip stocks are best options or else we should invest them in other contant value increasing stocks inspite of the risk.

long-term expected return : As i mentioned earlier the rates are very subjective depand on the circumstances But the rates cited earlier (10 to 15 percent ) for bonds are acceptable. As far as stocks are concerned depending on the risk we assumed expected rate of return can be 30 to 40 percentage.