Assignment:
Strategic asset allocation
Your investment team preforms market research and provides expert financial advice to clients. The asset allocation for the Taylors is a strategic one, determined by an investment horizon of greater than 10 years. Accordingly, the decision on asset allocation will reflect the long-term investment risk/return objectives. Since the investment is long-term, the influence of financial crisis and short-term market fluctuation is supposed to be less important. The Taylors focus on six asset classes for investment:
(1) Australian equities;
(2) Australian real estate;
(3) US large equities;
(4) Australian government bonds;
(5) US government bonds; and
(6) AU 13-week treasury notes. Interest-generating investments, such as bonds and short-term money market instruments, have historically provided little opportunity for real long-term capital growth due to their susceptibility to inflation.
Equity investments, on the other hand, have significantly higher expected returns but have the disadvantage of much greater variability of returns.
Create an investment policy statement (IPS) for the Taylors. The IPS should at least include
1. Introduction
2. Current asset analysis
3. Investor circumstances
4. Investment objectives
4.1 Return objective
4.2 Risk objective
5. Investment constraints
5.1 Time horizon
5.2 Liquidity
5.3 Unique Needs and preferences
5.4 Tax concerns
5.5 Investment guideline
6. Adjusted allocation