You have been named as investment adviser to a foundation established by Dr. Walter Jones with an original contribution consisting entirely of the common stock of Jomedco, Inc. Founded by Dr. Jones, Jomedco manufactures and markets medical devices invented by the doctor and collects royalties on other patented innovations.
All of the shares that made up the initial contribution to the foundation were sold at a public offering of Jomedco common stock, and the $5 million proceeds will be deliv- ered to the foundation within the next week. At the same time, Mrs. Jones will receive $5 million in proceeds from the sale of her stock in Jomedco.
Dr. Jones’s purpose in establishing the Jones Foundation was to “offset the effect of inflation on medical school tuition for the maximum number of worthy students.”
You are preparing for a meeting with the foundation trustees to discuss investment policy and asset allocation.
- Define and give examples that show the differences between an investment objective, an investment constraint, and investment policy.
- Identify and describe an appropriate set of investment objectives and investment con- straints for the Jones Foundation.
- Based on the investment objectives and investment constraints identified in part (2), prepare a comprehensive investment policy statement for the Jones Foundation to be recommended for adoption by the trustees.
WEB master
The proper asset allocation for an investor planning for retirement changes dramatically over time. Investors who do not frequently update their asset allocation could be caught in a tragic investment scenario that significantly delays retirement. This is exactly what occurred in 2008, when investors planning for retirement realized they had not reallocated their portfolios away from stocks and into fixed-income securities over the years, as they should have.
Go to money.cnn.com/retirement and under the Retirement tab, select Retirement Calcu- lators. Click the last calculator on the list, defined as “Get the right asset allocation.” Calculate an asset allocation for the following two scenarios:
- Need the money: 20 1 years
How much risk: As much as possible How flexible: If I miss my goal . . . OK
During market sell-offs: See an opportunity to buy
- Need the money: 3–5 years How much risk: Not much at all
How flexible: I can’t afford to miss my target During market sell-offs: Do nothing
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