FIN-655 Benchmark – Individual Portfolio Project

FIN-655 Benchmark – Individual Portfolio Project

A portfolio manager drafts an investment policy statement for a client to guide the client and portfolio manager when managing the asset and investment portfolio. The statement provides a client’s general investment goals and objectives and describes the strategies the manager should employ to meet these objectives. An investment policy statement includes Specific information on asset allocation, risk tolerance, and liquidity requirements (Fraser & Jennings, 2010).

Client Overview

Brian Taylor, 60, and his wife Katie, 52, are U.S. citizens and residents of Arizona. Brian is an entrepreneur who would like to utilize his expertise to start another business in his former industry. He sold his business five years ago after being in the industry for twenty-five years. His wife, Katie, is a passionate equestrian. The Taylors own homes in Arizona and California. They do not have plans to sell any of the two homes, and they plan to create an equestrian rescue ranch on the Arizona ranch. The Taylors have no children. Currently, the Taylors have the assets, liabilities, and budgetary needs listed below to build their portfolio.

• Assets valued at $100 million
• Living trust investment account worth $46 million in municipal and corporate bonds
• Brian’s IRA investment valued at $1 million in a taxable bond fund
• Homes and personal property worth $39 million
• Other divestible property and land worth $10 million
• Arizona ranch valued at $4 million
• Total liabilities worth $5 million
• Monthly budgetary needs of approximately $175,000 ($2.1 million annually)

Investment Policy Statement

Investments

Brian Taylor’s investment in a new business will require sufficient financial resources, and he will use his expertise to reduce the risks. The capital can be sourced from Brian’s annual returns from the IRA bond funds. The equestrian rescue center will be created on the Arizona ranch, and its capital can be sourced from the sale of some of the joint divestible property. Proceeds from offsetting the divestible property will also be used to clear the total of the $5 million liabilities.

Objectives

Total returns – The offsetting of a number of assets to set up the business for Brian Taylor should provide sufficient working capital, sufficient budgetary income for the Taylors, and capital for the creation of the equestrian. The budgetary needs can be met by the total interest earned by the municipal and corporate bonds and the IRA account. The Taylors should minimize the tax requirements on assets, and they can consider using some assets as collateral to get debt finance for their new business.

Risk capacity and risk tolerance – Mr. Brian Taylor is an expert in his field of business and, therefore, familiar with what it takes to invest in a new business. Mrs. Katie Taylor is a passionate equestrian whose knowledge will give the rescue center a good foundation. The Taylors have a wide and strong asset base for the new ventures. A wide base of assets gives the Taylors a good capacity to take financial risk to reach their goals (Rampini & Viswanathan 2010).

Constraints

Budgetary Needs. The Taylors’ budgetary needs are on the higher side in the long term. The family will need to attain liquidity of small assets in the portfolio.

Time. As a not-for-profit organization, the equestrian rescue centre should have a sustainable source of funding for its operations.

Liquidity Needs. The Taylors’ new ventures require a higher liquidity to cushion the potential high spending and, therefore, the need to convert some assets into a good flow of income. This may, however, reduce the future value of the liquidated assets of the Taylors.

Taxes. The Taylors are top taxpayers, and as they make investments, they should prioritize keeping in check ways to minimize tax. The reward will be more income for the business.

The liquidating of the divestible property will be a source of income for the business. This will also include leasing or renting a California residence to bring in supplementary income to cover the budgetary needs. The other assets can be used as collateral for the business’s debt financing. The Arizona ranch presents as $4 million land capital for the rescue center, and the Taylors won’t need to purchase or lease land for the center. The equestrian rescue center will not generate income, and therefore capital for its establishment should be sourced from the jointly owned assets. The goal should be the balance of assets, active income, and capital growth (Kagan, 2021). The interest earned annually on bonds will be a reliable source of working capital for the business and rescue center. The assets worth $100 million will generate a net income (Laux, 2013) which will be allocated to the sustainable funding of the equestrian rescue center.

References

Fraser, S. P., & Jennings, W. W. (2010). Examining the use of investment policy statements. The Journal of Wealth Management, 13(2), 10-22.

Kagan, J. (2021, May 19). Introduction to the Investment Policy Statement (IPS). Investopedia. https://www.investopedia.com/terms/i/ips.asp#:~:text=An%20investment%20policy%20statement%20(IPS,employ%20to%20meet%20these%20objectives.

Laux, R. C. (2013) Laux, R. C. (2013). The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), 1357-1383. The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), 1357-1383.

Rampini, A. A., & Viswanathan, S. (2010). Collateral, risk management, and the distribution of debt capacity. The Journal of Finance, 65(6), 2293-2322.

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The purpose of this assignment is to develop an investment policy statement, including a recommended portfolio, for a potential client.

The instructor will assign you a scenario that includes a client’s pertinent personal and financial information. Using the same scenario from your previous assignments, discuss the client’s information and develop an investment policy statement for your client. Offer recommendations for the client’s portfolio and provide a justification for the recommendations presented.

Make all necessary revisions and corrections to previous assignments “Individual Portfolio Project – Parts I and II.” Combine the instructor feedback and all elements into one cohesive portfolio project.

FIN-655 Benchmark – Individual Portfolio Project

The policy statement should be 750-1,000 words (excluding graphs and charts) and must include the following information:

1. An overview of the client;
2. A detailed explanation of the investment policy statement, including the investment and objectives for the portfolio based on the unique needs and preferences of the client;
3. A description of any investment constraints, liquidity needs, and the client’s time horizon –– be sure to incorporate knowledge from the course that may include the discussion of: expected standard deviation, risk/reward, downside deviation, present/future value of investment, etc.
4. Data presented in the form of numbers, graphs, and charts — utilize the Monte Carlo illustration of outflows;
5. A justification of each investment recommendation you will make to the client;
6. Justification for your policy recommendations based on the principles of modern portfolio theory;
7. Core allocation percentage targets and ranges;
8. Tactical allocation percentage ranges; and
9. Cited references.

Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

You are required to submit this assignment to LopesWrite. Refer to the LopesWrite Technical Support articles for assistance.

NOTES:

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Please see attached file (FIN665T7HWdetails) on the details of the assignment.