Investment Policy Statement
. Statement of Objectives
1. The objectives of the Portfolio are
2. Time Horizon
3. Risk Tolerances
4. Performance Expectations
. Asset Class Guidelines
Long-term investment performance, in large part, is primarily a function of asset class mix. Historically while interest-generating investments, such as bonds, have the advantage of relative stability of principal value, they provide little opportunity for real long-term capital growth due to their susceptibility to inflation. On the other hand, equity investments, such as common stocks, clearly have a significantly higher expected return but have the disadvantage of much greater year-by-year variability of return. From an investment decision-making point of view, this year-by-year variability may be worth accepting given the client’s long time horizon. Focusing on balancing the risks and rewards of each broad asset class, the following asset classes are deemed acceptable for investment are:
. Optimal Asset Allocation
Based on the Markowitz portfolio theory the optimal allocation for my retirement portfolio are:
Real Estate 7%
Diversified Emerging Mkts 6%
Long-Term Bond 9%
World Bond 10%
Foreign Large Cap Equity 18%
US Equity Mid-Cap
In order to implement the asset classes chosen we decided on the following exchange traded funds:
. Monitoring – Performance Objectives
The Client(s) acknowledges fluctuating rates of return characterize the securities markets, particularly during short-term time periods. Recognizing that short-term fluctuations may cause variations in performance, the Client(s) intends to evaluate investment performance from a long-term perspective. The Client(s) is aware the ongoing review and analysis of the investment options is just as important as the due diligence process. The performance of the investment options will be monitored on an ongoing basis and it is at the Client’s discretion to take corrective action by replacing a manager if they deem it appropriate at any time.
On a timely basis, but not less than quarterly, the Client will the portfolio return, standard deviation, Sharpe ratio, beta, and alpha.
For the period from 2013-June 30th 2014 the performance of the retirement portfolio was the following:
. Monitoring – Benchmarks
Performance benchmarks have been established for each investment option. Manager performance will be evaluated in terms of an appropriate market index (e.g. the S&P 500 stock index for large-cap domestic equity manager) and the relevant peer group (e.g. the large-cap growth mutual fund universe for a large-cap growth mutual fund).
Peer Group Benchmark Index
Diversified Emerging Mkts MSCI EM NR USD
Foreign Large Blend MSCI ACWI Ex USA NR USD
Intermediate-Term Bond Barclays US Govt/Credit 5-10 Yr TR USD
Large Blend S&P 500 TR
Real Estate DJ US Select REIT TR USD
Small Blend Russell 2000 TR USD
World Bond Citi WGBI NonUSD USD
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