Academic Master

Business and Finance

Personalized Investment Policy Statement (IPS)

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 planed.
  • Allows for predictions on the success rates through 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 retire, the following are the business goals and objectives for the company;

  • Retire in the next 40 years
  • A minimum annual income of not less than $100,000 after tax deductions.
  • Minimize tax liabilities by investing in stocks and bonds in other companies. Invest in short term stocks and long-term bonds
  • Corporate social responsibility- give back to society through scholarships and taking part in communal projects such as establishment of healthcare facilities and schools
  • As an aggressive investor, I plan to ensure that the risks I associate the firm with are very profitable
A compounded growth of not less than 10% growth on annual basis
Risk Tolerance and Return Profile

(Thune, 2017)

The risk tolerance is as stated below;

  • A maximum of 35% drop in the stock market
  • The drop in stock market at maximum should last 3 financial consecutive years after which I will sell 20% of the shares to invest in the business
  • Continually invest in bonds. Annually transfer investments in bonds as opposed to stocks because of the security associated with bonds.

The return profile in regards to my investments and risk is simply 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 maturity for the company.

Comparison of shares will also be based on performance of similar companies

A rise in value of stocks will dismiss the need to sell/transfer the stocks

Asset Allocation

(French & Poterba, 1991)

To ensure balance between risks, investments and profits, assets will be allocated in 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 follows;

  • Large cap equities- 10%
  • International equity- 25%
  • International cap equity- 5%
  • Core-fixed income- 25%
  • Corporate bonds- 25%
  • Mid cap equities- 10%
Each asset is expected to surpass the stated benchmarks. The maximum time before achieving these is 3 years.
Investment Preferences and Constraints (Dasgupta, 2011) The company will prioritize on;

  • Investments in lowly taxed businesses. Investment is limited to a maximum of 35% tax on corporate and individual tax and 40% tax on import and export taxes
  • Gradually reduce the acceptability of investment in risky businesses
  • Not more than 60% shares will be distributed with less than 5% distributed in a highly lucrative year
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 on 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 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). Investement 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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