Finc 340 - PMP - Week 2 - Reserved for Scofied

1. Establish reasonable expectations, objectives, and guidelines in the investment of the Portfolio’s assets.

2. Set forth an investment structure detailing permitted asset classes, normal allocations and permissible ranges of exposure for the portfolio.

3. Encourage effective communications between the Investor and the Advisor

4. Create the framework for a well-diversified asset mix that can be expected to generate acceptable long term returns at a level of risk suitable for the Investor.

This statement has been developed from an evaluation of many key factors which impact the Investor’s specific situation and investment objectives.

Portfolio Objectives

The Investor, <Client> is a 40 year old <characteristics>, looking to retire in twenty years, and wanting to be able to live financially comfortable from her investments. Her portfolio objectives are as follows:

1. To retire at the age of 60

2. To have an annual income from her investments of at least $50,000 after taxes and in today’s dollars (assuming inflation to be at 3% yearly)

3. To leave a good inheritance for her child

4. To minimize any tax liabilities

5. To monitor portfolio allocations against holding limits, to benchmark returns against expectations, and to consider revisions to portfolio as personal situations may dictate.

Investment, Asset Allocation, Return Objectives, Risk Tolerance

The investor wants a diversified portfolio with $100,000 invested in each of the following types of securities: Stocks, Bonds, Options and Futures. The investor is looking for this investment to help her live comfortably for at least twenty years into retirement. The risk tolerance for this portfolio is a little higher than moderate because this is a long term plan. Ms. Smith is looking for an 8% return on her investments and a tax rate of about 33%.

An asset allocation plan for <client’s> portfolio is attached as Appendix A and will be subject to a review on a quarterly basis. The target allocations are as follows: 55% in Stocks with a low range of 45% and a upper range of 65% and the NYSE Composite Index used as an evaluation benchmark, target allocation of 25% in Bonds with a low range of 15% and a upper range of 35% and Barclays US Aggregate Bond Index used as an evaluation benchmark, U.S Money Markets with a target allocation of 5% with a low range of 0% and a upper range of 10% and Smart Money Market Index used as an evaluation benchmark, and International Equities with a target allocation of 15% and a low range of 5% and a upper range of 25% and the MSCI EAFE Index used as an evaluation benchmark.

Risk Management

As financial advisor to <client>, <Your name> will provide the performance of all investments in the portfolio at the end of each quarter. At this time, <client> will also propose any transactions that need to be rebalanced to meet her target allocations.

References:

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Appendix A