Investment Policy Statement Otto Khatamov
tarix 27.12.2018 ölçüsü 445 b. #87372
How to manage investments in assets (i.e. stocks, bonds etc.) to meet specified investment goals? How to manage investments in assets (i.e. stocks, bonds etc.) to meet specified investment goals? Client needs: Investment policy statementClient needs: Investment policy statementFocus: Investor’s short-term and long-term needs, expectations Portfolio manager : Examine current and projected financial, economic, political, and social conditionsFocus: Short-term and intermediate-term expected conditions to use in constructing a specific portfolio Portfolio manager: Implement the plan by constructing the portfolioFocus: Meet the investor’s needs at minimum risk levels Client/Portfolio manager : Feedback loopThe preliminaries The preliminaries Basic needs Investment and life cycle net worth Two important components of the investment policy statement Investment objectives Individuals versus institutions Investment constraints Individuals versus institutions Investment Policy Statement: In detail The preliminaries The preliminaries Investment funds after the satisfaction of basic needs (i.e. living cost): Insurance: Life insurance, Health insurance, Automobile and home insurance. Cash reserves (i.e. six months’ living expenses): Emergencies , Job layoffs, Investment opportunities. Investment needs and the life cycle net worth: Accumulation phase Consolidation phase Graphically Spending phase The preliminaries The preliminaries Rise and fall of personal Net worth over the lifetime The preliminaries The preliminaries Benefits from investing early The preliminaries The preliminaries Rise and fall of personal Net worth over the lifetime Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives Risk return relationship (pyramid game i.e. Ponzi, Afinsa etc.) What is risk? Risk denotes the probability distribution of possible economic outcomes (danger vs opportunity ). Risk tolerance: Investor’s willingness to accept risk Investor’s ability to accept risk Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives Suggested initial asset allocation by investment banks (i.e. TRowePrice.com) Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives The historical record: Bills, bonds and stocks Source: BKM Chapter 5 – Sources: Returns on T-bills, large and small stocks – CRSP, T-bonds - RSP for 1926-1995 returns and Lehman Brothers long-term and intermediate indexes for 1996 and later returns. Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives: Question Based on the historical record over the long-run, stocks outperformed bonds and bills. Why not invest 100% in stocks? Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives What is an appropriate investment objective for a 25-year old and a 65-year old investor? Basic needs Capital preservation/appreciation Risk tolerance (assume moderate) Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives 25-year old investor Basic needs: Steady job, insurance coverage, cash reserve Capital preservation/appreciation: Given the age capital appreciation is more appropriate Risk tolerance (moderate): Assuming long horizon she must invest in risky assets (i.e. riskier than NYSE index). Equity exposure should range from 70% to 90% and the remaining funds should be invested in bonds or short-term notes. Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives 65-year old investor Basic needs: Steady job, insurance coverage, cash reserve Capital preservation/appreciation: Given the age capital preservation Risk tolerance (moderate): Assuming short horizon Inputs to the investment policy statement Inputs to the investment policy statement Investment objectives: Individuals versus institutions Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints Liquidity needs Liquid assets Short-term needs Car, house and college tuition fees 25-year old investor Little need for liquidity Possibility for unemployment or honeymoon expense 65-year old investor Greater need for liquidity Lifestyle needs for expenses Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints Time horizon Long investment horizon generally need less liquidity and can tolerate greater risk 25-year old investor 65-year old investor Due to life expectancies has shorter investment time horizon Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints Tax concerns Taxable income from interest, dividends or rents are taxable at the investor’s marginal rate (i.e. 10%-40%) Capital gains are taxed differently (i.e. 15%). Capital gains are taxed when they are realised (i.e. asset is sold) whereas income is taxed when it is received International investments 25-year old vs 65-year old investor Depending on their tax bracket may have preferences for different assets i.e. tax-exempt income or tax-deferred plans Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints Legal and regulatory factors Fund withdrawal from a 401(k) plan before the age of 59.5 are taxable to an additional 10% penalty 25-year old vs 65-year old investor Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints Unique needs and preferences Refers to idiosyncratic concerns of each investor Avoid investments in tobacco companies or environmentally harmful products Expertise of the portfolio manager 25-year old vs 65-year old investor Depends on each individual Inputs to the investment policy statement Inputs to the investment policy statement Investment constraints: Individuals versus institutions c. Investment policy statement: In detail c. Investment policy statement: In detail Components of investment policy statement Brief description of the client The duties and investment responsibilities of parties involved The statement of investment objectives/constraints The schedule for review of both the investment performance and the investment policy statement Performance measures and benchmarks Investment strategies/style Guidelines for rebalancing the portfolio based on feedback c. Investment policy statement: In detail c. Investment policy statement: In detail Importance of investment policy statement Define realistic investor goals (i.e. objectives, constraints, education purposes) Standards for evaluating portfolio performance (i.e. benchmark portfolio) Performance vs investment policy statement Other benefits Protection against inappropriate behavior from entrenched managers Dostları ilə paylaş:
