Mr. Franklin is 35 years of age, is in excellent health, and pursues an active life style. He is married and his spouse is the same age and is in good health. Both Mr. and Mrs. Franklin are school teachers who earn about $60,000 per year. Both of them plan to retire at age 62. Each of them will receive pensions equal to 65% of their annual salaries, plus Social Security benefits amounting to 20% of their annual salaries. Together, the Franklins have savings, plus some equity in their home. Currently the following assets are available for use in building an appropriate portfolio:
$ 25,000 Cash
$100,000 Low-yielding bank certificates of deposit
$100,000 Equity in personal residence (with $200,000 mortgage)
$225,000 Total available assets
a. Formulate and justify an investment policy statement setting forth the appropriate guidelines within which future investment actions should take place. Your policy statement must encompass all relevant objective and constraint considerations.
Note: The Supplements in the online classroom include information about the contents of investment policy statements. The policy statement developed for this question must parallel the suggested contents. Make sure that the risk and return objectives are quantified appropriately.
See attached file for proper format.
NOTE: The IPS provided is in standard format, edited only on the specifics relating to Mr. and Mrs. Franklin
This investment policy statement sets forth the process that Mr. and Mrs. Franklin have adopted to make investment- related decisions with respect to the couple's retirement planning. This policy identifies the investment goals and objectives of the plan, sets out decision-making processes for selecting investments, and specifies the procedures and relevant measurement indexes to be used in assessing ongoing investment performance, in accordance with the stated investment objectives.
The investment policy statement will be used as the basis for measuring and evaluating future investment performance and will itself be reviewed, at least annually, by Mr. and Mrs. Franklin.
This statement has been developed from an evaluation of many key factors pertaining to the specific situation of Mr. and Mrs. Franklin.
II. The Portfolio
The Portfolio will maintain an active asset allocation strategy. The Portfolio will be invested exclusively in several asset classes. As a result, assets held in the Portfolio will be relatively long term.
Mr. and Mrs. Franklin are ultimately responsible for selecting and monitoring investment manager advising them. Investment managers are selected and monitored on the basis of the following criteria:
? the manager's specification of and adherence to a clearly articulated and appropriate investment philosophy and process.
? comparisons of performance results ...
The investment policy statement for the Franklin's retirement plan is examined.