Investment Policy Statement for Jake Thomas
This Investment Policy Statement is written based on the current profile and desired objectives for Mr. Thomas.
Investor Life Cycle
The investor life cycle can be broken down into three stages: the accumulation phase, the consolidation phase, and the spending phase (“Investment basics”, n.d.). Mr. Thomas is a young man early in his career and just starting his investment portfolio with goals for children’s college funds and retirement, therefore he is in the accumulation phase of his investor life cycle.
Investment Objectives
Since Mr. Thomas is in the accumulation phase and has time to recoup any early losses, the investment objective currently will be aggressive growth (Wilson, 2010). Because …show more content…
Thomas will need an average rate of return of 5% assuming an inflation rate of 2.5% (FINRA, n.d.) and allowing for projected increases in the costs of higher education (Onink, 2015). Investing in a 529 plan, which is specifically for educational costs and offers tax benefits, can be an ideal way to save for college. However, 529 plans still have risk like most other investments. Plans should be adjusted down from a large equity (stock) base as children near enrollment age (Weston, 2013). By tailoring the investment strategy based on the child’s age rather than the investor’s life cycle phase, the chances of college expenses having an adverse effect on retirement savings will be decreased. Regarding the retirement savings goals, again the calculations have been based on a 5% rate of return (msn|money, n.d.). Due to the nature of rates and the unpredictable way interest and return rates can fluctuate, Mr. Thomas is advised to invest for aggressive growth now in the accumulation phase in an effort to reap higher returns while still able to absorb losses. As Mr. Thomas moves into the consolidation phase he will be able to adjust the investment strategy to more moderate return/risk investments and while continuing to build his retirement plan. When Mr. Thomas is ready to retire, or shortly before, the investment objective can shift to low risk/low return vehicles. Adjusting the risk and therefore the return over the investment life cycle will help ensure an overall return rate of 5% in order to meet the targeted
This Investment Policy Statement is written based on the current profile and desired objectives for Mr. Thomas.
Investor Life Cycle
The investor life cycle can be broken down into three stages: the accumulation phase, the consolidation phase, and the spending phase (“Investment basics”, n.d.). Mr. Thomas is a young man early in his career and just starting his investment portfolio with goals for children’s college funds and retirement, therefore he is in the accumulation phase of his investor life cycle.
Investment Objectives
Since Mr. Thomas is in the accumulation phase and has time to recoup any early losses, the investment objective currently will be aggressive growth (Wilson, 2010). Because …show more content…
Thomas will need an average rate of return of 5% assuming an inflation rate of 2.5% (FINRA, n.d.) and allowing for projected increases in the costs of higher education (Onink, 2015). Investing in a 529 plan, which is specifically for educational costs and offers tax benefits, can be an ideal way to save for college. However, 529 plans still have risk like most other investments. Plans should be adjusted down from a large equity (stock) base as children near enrollment age (Weston, 2013). By tailoring the investment strategy based on the child’s age rather than the investor’s life cycle phase, the chances of college expenses having an adverse effect on retirement savings will be decreased. Regarding the retirement savings goals, again the calculations have been based on a 5% rate of return (msn|money, n.d.). Due to the nature of rates and the unpredictable way interest and return rates can fluctuate, Mr. Thomas is advised to invest for aggressive growth now in the accumulation phase in an effort to reap higher returns while still able to absorb losses. As Mr. Thomas moves into the consolidation phase he will be able to adjust the investment strategy to more moderate return/risk investments and while continuing to build his retirement plan. When Mr. Thomas is ready to retire, or shortly before, the investment objective can shift to low risk/low return vehicles. Adjusting the risk and therefore the return over the investment life cycle will help ensure an overall return rate of 5% in order to meet the targeted