Developing an Investment Policy Statement

Question 1

3 key steps of Portfolio Management Process

Answer 1

1. Develop an investment policy statement
2. Construct the portfolio (asset allocation)
3. Evaluate performance

Question 2

4 benefits of a well written Investment Policy Statement

Answer 2

1. In event of legal issues there is a paper trail
2. Can decrease second guessing later
3. Keeps decision makers focused in market chaos
4. Provides guidance in estate planning process

Question 3

3 Main Elements of Investment Policy Statement

Answer 3

-Objectives (Expected return, risk tolerance)

-Constraints and Preferences (Time horizon, liquidity, taxes, unique situations)

-Investment Guidelines (Asset allocation rebalancing strategies)

Question 4

5 most common constraints of a Portfolio

Answer 4

1. Liquidity needs
2. Time horizon
3. Taxes
4. Legal considerations
5. Unique needs and preferences (green investing, disability, etc.)

Question 5

As a rule of thumb, a rebalancing limit of plus or minus ___% would be sufficient to maintain the risk/return profile of an investment policy while only requiring rebalancing once or twice per year.

Answer 5

5%