Investment Policy Statement
Mr. & Mrs. Liston’s Retirement Fund

The aim of our investment policy statement is to outline to our clients, the aims and procedures which apply to the investors’ investment portfolio. We need to ensure that a clear understanding is established between MMRL Financial Advisors Limited (to be known as “MMRL” hereafter) and the clients. The statement will:     Provide a detailed outline of the clients’ expectations, aims and guidelines, for the investment portfolio; Clarify which asset classes are permitted for investment, the levels of exposure and the ratios for capital allocation; Promote good communication between MMRL’s financial advisors and the clients; and Draw up the framework for an asset portfolio, which is anticipated to build up adequate long term returns, at a level of risk that is satisfactory for investors.

This statement was developed with the clients’ specific situation and the aims of investment in mind. This investment policy statement is not a contract. This document has been drawn up as the basis of guidance for MMRL’s advisors and investors.

The Portfolio
The portfolio will maintain a passive asset allocation strategy. In other words, we will initially invest the capital with the aim of achieving the clients’ long term goals and occasionally monitor our portfolio over time to ensure that it is moving towards this end goal. We will review our progress on a quarterly basis. The portfolio will invest across a wide range of dividend paying stocks and coupon paying bonds. We hope to build a well-diversified portfolio for our clients.

Investment Objectives
The portfolio aims to provide capital appreciation on a long term basis for the Listons who are now starting to save for retirement. They are seeking an annual return of 7.5% of the monies initially invested. They wish to generate €300,000 over 30 years. Any money generated from dividend paying stocks will be re-invested in the portfolio. Our clients have requested as a secondary wish that 10% of the total capital invested be available to them at all times and be classed as an emergency fund. Thus, we will have to invest at least 10% in highly liquid assets.

Guidelines and Policies
Time Horizon
The Listons have thirty years until retirement and thus, this will be the length of our investment. Our passive asset allocation strategy shall work for them as it has been proven based on historical asset class return data that the longer one holds stocks, the less of a chance there is of a principal loss. In the short run, stocks tend to demonstrate more volatility. A minimum holding period of three years is recommended for the long-term investment mix adopted by the portfolio. The investor must be resigned to the fact that no matter how well a portfolio is developed, investing by its very nature is inherently risky and losses can occur.

Risk Tolerance and Performance Expectations
The investor realises that their aims cannot be achieved without adopting some level of risk. We will invest 75% of the capital in global stocks and the remaining 25% in long term government bonds in a country of our choice. We are hoping that the stocks will provide the investor with a higher expected return and that the bonds will help with the diversification of the portfolio. Our clients will be investing €34,266.31 initially. This was calculated by discounting future cash flows to get their present value. Calculations (Total Return required in 30 years/ ((1 + Annual Rate of Return required) ^30)) (€300,000/ ((1+0.075) ^30)) €34,266.31 According to Investopedia, “For an asset to be liquid it needs an established market with enough participants to absorb the selling without materially impacting the price of the asset. There also needs to be a relative ease in the transfer of ownership and the movement of the asset.” All of these attributes can be seen in the stock markets and in the markets of government bonds. Thus, the portfolio developed by us can be seen as being highly liquid. Our clients have requested as a secondary wish that 10% of the total capital invested be available to them at all times and be classed as an emergency fund. We should be able to accommodate this wish. However, the client must be aware that any withdrawal of funds will adversely affect the portfolio’s potential and may deter it from reaching the end goal of €300,000 over 30 years. The clients must also bear in mind that liquidity within the markets can be adversely influenced by macroeconomic forces outside of our control. Our clients are risk averse. They want to have a realistic chance of achieving their aims whilst minimising risk. They want the correlation between the various stocks and bonds invested to be below zero on an overall basis.

Re-balancing Procedures
The capital invested in the project will be tracked based on current market value. It is highly likely that given changes in the financial markets, we will have to adjust the weightings of our investments over time. We will review this account on a quarterly basis. If we find that our weightings have seen a change of 5% or higher, we will adjust them so that they again fall in line with our initial weightings. If for example, a stock has risen significantly enough to unbalance the weightings of our portfolio, we will have to sell some of our shares in this stock and redistribute money amongst the portfolio. If a stock has made a significant loss and affected our weightings, we may have to purchase more of this stock to re-balance the portfolio.

Duties and Responsibilities
Investment Advisor
MMRL’s financial advisors are charged with abetting the investors in holding a suitable asset allocation in accordance with the guidelines set out in this investment policy statement. Our advisors will be available often to discuss with the client the performance of funds under management and to

discuss any changes to the clients’ requirements. Our advisors will meet with the client on an annual basis to review the progress of investments.

The Investors must be forthcoming with all information related to net worth, risk tolerance and promptly notify the advisors at MMRL of any material changes to any of the aforementioned information. The investors must ensure that they understand all information contained in the investment policy statement and ask questions where necessary.

Adoption of Investment Policy Statement I (we) have read all material contained in the Investment Policy Statement and give it our approval for adoption. ______________________ Mr. Liston ______________________ Mrs. Liston ______________________ Representative of MMRL Financial Advisors Limited

  

Sign up to vote on this title
UsefulNot useful