The Investment Policy Statement (IPS) is used as a guiding system by highlighting the objectives and goals of an investment. It shows the strategies used in implementing the objectives and goals.
From an IPS (John & Jane, 2015), company heads make deliberate and strategic financial decisions such as:
- The best investment strategies.
- Identification of appropriate asset classes for specific objectives.
- Establishment of appropriate long-term investments.
Other benefits to the company of adopting the IPS in the company processes include:
- Provision for long-term decisions as opposed to solutions meant to address the present problems.
- Clarifying the eventual goals and issues to be addressed; hence, communication between the departments and managers is effectively planned.
- It allows for predictions on the success rates by analyzing the probability of achievement of the set goals.
Investment Policy Statement Draft (IPS)
| Benchmarks | ||
| Goals and Objectives | From the assets allocation, risk tolerance, financial goals, and time before retirement, the following are the business goals and objectives for the company;
|
A compounded growth of not less than 10% growth on an annual basis |
| Risk Tolerance and Return Profile
(Thune, 2017) |
The risk tolerance is as stated below;
The return profile in regards to my investments and risk is simply to ensure that the returns from my investments are high but with minimal risk. However, the financial gain from the risk should be considered only if the risk does not surpass the value of the investment. Investment in bonds is limited to 10 years of maturity for the company. |
Comparison of shares will also be based on the performance of similar companies.
A rise in the value of stocks will dismiss the need to sell/transfer the stocks. |
| Asset Allocation
(French & Poterba, 1991) |
To ensure a balance between risks, investments, and profits, assets will be allocated with respect to risk tolerance, time frame, and business goals. Because of the difference in performance for different assets and markets, the asset allocation will be as folloLarge-cap cap equities- 10%
|
Each asset is expected to surpass the stated benchmarks. The maximum time before achieving these is three years. |
| Investment Preferences and Constraints (Dasgupta, 2011) | The company will prioritize the following:
|
|
| Time to review goals, objectives, and risks
(Fazzari, Hubbard, & Petersen, 1988) |
An annual external audit will be held at the end of every fiscal year. From the audit, strategies for future investments and regulations will be decided.
The internal audits will be held on a quarterly basis to deliberate on the direction of the company regarding investments in risky ventures and depreciation in stocks. From both audits, the losses in the form of tax will show the probable investments to reduce the funds spent in tax payments. |
The performance of the investments will determine the success rate and change in goals. |
Works Cited
Dasgupta, T. (2011). A STUDY ON THE INVESTMENT PREFERENCES IN THE. International Journal of Scientific Research and Management Studies, 2(3), 143-149. Retrieved from http://www.ijsrms.com/media/0001/2I15-IJSRMS0202118-v2-i3-143-149.pdf
Fazzari, S. M., Hubbard, R. G., & Petersen, B. C. (1988). Financing Constraints and Corporate Investment. Brookings papers on economic activity, 141-206. Retrieved from http://www.jstor.org/stable/2534426?seq=1#page_scan_tab_contents
French, K. R., & Poterba, J. M. (1991). Investor Diversification and International Equity Markets. Monetary Economics, 81(1), 1-15. Retrieved from http://www.nber.org/papers/w3609.pdf
John, & Jane. (2015). Investment Policy Statement. Salisbury Ocean City Lewes, 1(1), 1-13. Retrieved from http://pksadvisors.com/wp-content/uploads/2016/01/Investment-Policy-Sample-2016.pdf
Thune, K. (2017). What is Risk Tolerance? The balance, 1(1), 2. Retrieved from https://www.thebalance.com/what-is-risk-tolerance-2466649
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