Investment Policy Statement January 09, 2007
Statement of Objectives Risk Tolerance TU
TU
2 2 UT
UT
Constraints Current Investments Income Needs & Time Horizon Taxes Legal & Regulatory Unique Needs & Circumstances
3 3 3 3 3 4
Asset Allocation Recommended Asset Allocation Probability of Achieving Goals
5 5 6
TU
UT
TU
UT
UT
TU
TU
UT
TU
UT
TU
UT
TU
UT
TU
UT
TU
UT
Investment Evaluation & Selection Criteria
8
Limitations on Investment Holdings
8
TU
UT
TU
Monitoring Your Progress TU
Advisor Compensation TU
UT
UT
UT
8 9
Agreement Wealth Projection
10 11
Prepared for: Dave Matthews 225 W Wacker Dr Chicago, IL 60606
Prepared by: John Mackowiak 225 W. Wacker Dr. Chicago, IL 60606 312-384-3732
[email protected]
TU
UT
TU
UT
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 2 of 14
NASD Members: For internal use or client reporting purposes only.
Your Investment Policy Statement is a summary of your current situation, your requirements and goals, and your recommended general investment strategy. Going forward, it will serve as a guide to your investment plan, governing how, why, and where your money is invested. Consider it a living document; this policy will adjust over time as your financial goals and investments evolve.
Statement of Objectives Risk Tolerance Investing involves an element of risk, whether that risk is loss of dollars invested or erosion of the value of your wealth due to inflation. In constructing your investment plan, we considered your willingness to tolerate investment risk by focusing on your investing time horizon, your comfort with short-term market variability, and your willingness to tolerate long-term market instability. Your risk profile is summarized as follows: Risk Profile 10 - 20 years
Investing horizon
Tolerance for long-term volatility
Moderate
Tolerance for short-term volatility
Moderate
Overall risk tolerance
© 2007 All Rights Reserved.
Very conservative
Conservative
Moderate
Moderately aggressive
Aggressive
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 3 of 14
NASD Members: For internal use or client reporting purposes only.
Constraints Current Investments Your investment plan is based on the following accounts, balances, and annual investments: Account Name
Owner
Balance $
Save More
Matthews Family
Quick Total
Annual Investment $
0.00
6,000.00
264,178.00
12,000.00
264,178.00
18,000.00
Income Needs & Time Horizon Your financial goals are defined in terms of the money that you will need at specific times in the future. The frequency, amount, and timing of the cash flows that you will need for each goal are indicated in the table below. Goal Name
Retire Early
Need $
65,000.00
Frequency
Start Date
Annual
2030
U
U
End Date
Taxes When investment recommendations are implemented in your taxable accounts, there may be tax costs. The impact of taxation will be considered in constructing your investment recommendations. The following tables summarize the tax status of each account and your tax rates, now and after you retire. Owner
Taxable Accounts
Matthews Family
Save More
Tax Deferred Accounts
Quick
Federal Rate
Current Tax Rates %
Taxes During Retirement %
00.0
00.0
Capital Gains Rate
00.0
00.0
State Rate
00.0
00.0
Municipal Rate
00.0
00.0
Legal & Regulatory
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
NASD Members: For internal use or client reporting purposes only.
Unique Needs & Circumstances
© 2007 All Rights Reserved.
Page 4 of 14
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 5 of 14
NASD Members: For internal use or client reporting purposes only.
Asset Allocation We believe that asset allocation — the overall mix of asset types within your portfolio — is an important determinant in your portfolio’s behavior. Before building your portfolio, we structure an asset allocation foundation to address your goals and tolerance for risk.
Recommended Asset Allocation The following side-by-side comparison of your current and recommended asset allocation highlights our proposed changes. Your current asset allocation is conservative. A conservative asset mix is best-suited for investors who are reluctant to risk short-term losses or who will need to pay for financial goals in the near term, but who still seek modest capital appreciation. Your recommended allocation is aggressive. An aggressive asset mix is best-suited for investors who have an extremely high tolerance for risk and a long time frame. Such a portfolio is likely to encounter substantial shortterm volatility, though it offers the best opportunity for above-market long-term gains.
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 6 of 14
NASD Members: For internal use or client reporting purposes only.
%
$
06.51
17,197
Large Value Stk
Large Growth Stk 10.44
27,580
Current Large Value Stk
%
$
25.42
67,154
Proposed
Large Growth Stk 25.42
67,154
Mid Value Stk
00.80
2,113
Mid Value Stk
07.20
19,020
Mid Growth Stk
02.10
5,547
Mid Growth Stk
07.20
19,020
Small Value Stk
00.00
0
Small Value Stk
03.38
8,929
Small Growth Stk 00.07
184
Small Growth Stk 03.38
8,929
Non-US Dev Stk 02.83
7,476
Non-US Dev Stk 15.60
41,211
Non-US Emrg Stk 00.52
1,373
Non-US Emrg Stk 02.40
6,340
Inv Grade Bonds 16.85
44,513
Inv Grade Bonds 05.60
14,793
79
High Yield Bonds 01.60
4,226
Non-US Bonds
00.80
2,113
High Yield Bonds 00.03 Non-US Bonds
00.74
1,954
Commodities
00.00
0
Commodities
00.00
0
RealEstate
00.00
0
RealEstate
00.00
0
Cash
59.11
156,155
Cash
02.00
5,283
Total
100
264,178
Total
100
264,178
Standard Deviation
4.23%
Standard Deviation
Return
2.98%
Return
15.31% 6.5%
Probability of Achieving Goals We project that you have a 80.0% chance of reaching your goals. This estimate is based on your current wealth, your planned contributions to your accounts, the risk and return projections for your asset allocation, and the cash flows we have estimated you receive from your investments. Our analysis applied an enhanced Monte Carlo simulation to more than 1000 possible scenarios. The following chart represents a range of possible results in the growth of your wealth over time. The starting dates at which cash will be withdrawn for various goals are noted in the graph. The bottom wealth line drawn in the graph assumes that 90% of the time, you should have at least this level of wealth. The middle wealth line drawn in the graph assumes a 75% chance of having at least this amount over time. The top line shows the average result—there is a 50% chance of achieving at least this level of wealth.
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 7 of 14
NASD Members: For internal use or client reporting purposes only.
Wealth Forecast: Total Wealth (in Today's $) Probability of Meeting Goal:
50% 46.3%
75% Chance 90% Probability of Meeting Goal:
2030
2030
100M
100M
1M
1M
10K
10K
1K
1K
10
10
0
2007 2017 2027 2037 2047 2057 2067 Current
80.0%
0
2007 2017 2027 2037 2047 2057 2067 With Proposed Asset Allocation
IMPORTANT: The projections or other information generated by Advisor Workstation Office Edition regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Advisor Workstation Goal Planner calculates a range of projected wealth amounts over time based on userentered data that describes a client’s financial situation (e.g., income, assets) and desired financial goal. At the lower end of each wealth range is the amount Goal Planner predicts the client will have a 90% chance of attaining or exceeding. We also show the wealth levels that the user has an estimated 75% and 50% probability of meeting or exceeding. To determine these income ranges, Morningstar Associates uses an enhanced form of Monte Carlo simulation, a mathematical method used to calculate distributions in statistical models. Morningstar’s Enhanced Monte Carlo approach is based on recent developments in Applied Mathematics, using points that are more evenly distributed with respect to the weight of the distribution of returns. In this way, simulated returns have less duplication and require a smaller sample size to achieve the same level of precision than more traditional Monte Carlo simulations. Goal Planner uses Morningstar’s own long-term forecasts for return, risk (measured by standard deviation), and correlation (the degree to which one asset class moves in tandem with others) for the following asset classes: U.S. Large-Cap Growth Stocks, U.S. Large-Cap Value Stocks, U.S. Mid-Cap Growth Stocks, U.S. Mid-Cap Value Stocks, U.S. Small-Cap Growth Stocks, U.S. Small-Cap Value Stocks, Developed Western Markets ex-U.S. Stocks, Emerging Markets Stocks, U.S. Investment Grade Bonds, U.S. High Yield Bonds, Non-U.S. Bonds, and Cash. For details on the specific risk and return assumptions used for each of these asset classes, see the Help section under “Asset Class Assumptions.”
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 8 of 14
NASD Members: For internal use or client reporting purposes only.
Investment Evaluation & Selection Criteria In addition to the asset allocation discussed previously, the following preferences will be used when selecting securities to fulfill your investment plan:
Limitations on Investment Holdings
Monitoring Your Progress This investment policy statement is based on your current situation, your resources, and your goals. In addition, it is based on our current expectations of the behavior of asset classes included in your asset allocation. Your situation and goals will change over time, as will reasonable performance projections. Other securities may become more appropriate for you over time. Your portfolio should be re-evaluated at least annually to ensure that you are making solid progress toward your goals. In the meantime, please make every effort to update John Mackowiak when substantial changes in your goals or situation take place. The performance of the securities selected for your portfolio will be monitored on an ongoing basis. Periods of underperformance are not unusual or alarming for an individual security or an asset class as a whole. Our intent in monitoring performance is to ensure that 1) you continue to be on track to achieve your goals, 2) over a reasonable period your investments produce acceptable return in relation to risk, 3) securities contribute to the portfolio as anticipated, and 4) the portfolio continues to feature an acceptable level of risk. If we have concerns about the performance of your securities, we’ll contact you to discuss these concerns and necessary changes. Likewise, if you have concerns about the performance of your portfolio, please let us know. At times, out performance of some securities and underperformance of others may result in the need to rebalance your portfolio to maintain a comfortable level of risk. We anticipate that this may need to be done at least annually.
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 9 of 14
NASD Members: For internal use or client reporting purposes only.
Advisor Compensation We think it is important for you to understand how we are compensated for our work with you. John Mackowiak is compensated by commissions received for transactions made on your account. These commissions can range from __% to __%, but generally will not exceed __%. John Mackowiak will receive an ongoing fee each year for management of your accounts, which is equal to __% of your total outstanding balances. This fee is assessed quarterly. John Mackowiak will receive an annual fee of $___. John Mackowiak receives an hourly fee of $___ for work on your behalf.
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 10 of 14
NASD Members: For internal use or client reporting purposes only.
Agreement I have reviewed and agree with the tenets of this Investment Policy Statement. I will notify John Mackowiak of any changes to my information, risk tolerance, goals, or investments. This policy will be reviewed annually.
Client Signature
Date
Client Signature
Date
Advisor Signature
Date
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 11 of 14
NASD Members: For internal use or client reporting purposes only.
Appendix B Wealth Projection This table presents projected wealth over the course of your lifetime. These numbers are generated from the wealth forecast. The Goal Payouts are shown next to the year in which they occur. Goals occurring over a number of years are shown multiple times on the chart. Financial markets are unpredictable, which makes the growth of your wealth uncertain. However, to help you understand various possibilities, we’ve estimated how your wealth might have grown in three different market conditions. The table below shows the wealth levels which Goal Planner predicts the client will have a 90%, 75%, and 50% chance of attaining or exceeding. Please treat these as estimates.
Chances of Achieving At Least This Wealth IMPORTANT: The projections or other information generated by Advisor Workstation Office Edition regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Year
50% $
75% $
90% $
2007
276,179.00
276,179.00
276,179.00
0.00
2008
309,849.00
279,970.00
260,387.00
0.00
2009
341,460.00
300,317.00
269,058.00
0.00
2010
372,606.00
316,264.00
279,569.00
0.00
2011
407,809.00
335,746.00
285,265.00
0.00
2012
437,263.00
352,177.00
304,046.00
0.00
2013
463,176.00
379,259.00
316,854.00
0.00
2014
502,618.00
399,757.00
335,334.00
0.00
2015
535,547.00
430,778.00
366,036.00
0.00
2016
574,565.00
458,437.00
371,648.00
0.00
2017
610,714.00
493,289.00
386,480.00
0.00
2018
650,639.00
530,962.00
410,393.00
0.00
2019
688,877.00
547,570.00
428,504.00
0.00
2020
733,699.00
566,723.00
433,763.00
0.00
2021
797,202.00
601,573.00
453,895.00
0.00
2022
825,392.00
627,191.00
476,984.00
0.00
2023
896,013.00
627,761.00
509,285.00
0.00
2024
932,123.00
669,305.00
533,582.00
0.00
2025
992,760.00
700,957.00
549,022.00
0.00
2026
1,038,768.00
751,501.00
569,660.00
0.00
2027
1,107,656.00
774,352.00
605,018.00
0.00
2028
1,159,492.00
817,778.00
625,288.00
0.00
2029
1,186,601.00
871,300.00
665,266.00
0.00
2030
1,211,645.00
814,866.00
597,430.00
65,000.00
© 2007 All Rights Reserved.
Goal Payout
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 12 of 14
NASD Members: For internal use or client reporting purposes only.
2031
1,231,155.00
775,909.00
542,593.00
65,000.00
2032
1,241,635.00
779,320.00
506,626.00
65,000.00
2033
1,260,722.00
744,476.00
442,311.00
65,000.00
2034
1,250,538.00
716,687.00
390,666.00
65,000.00
2035
1,217,857.00
688,766.00
379,759.00
65,000.00
2036
1,196,138.00
683,006.00
339,504.00
65,000.00
2037
1,180,949.00
610,017.00
313,762.00
65,000.00
2038
1,172,994.00
598,980.00
284,375.00
65,000.00
2039
1,176,478.00
563,202.00
232,005.00
65,000.00
2040
1,133,897.00
551,069.00
176,367.00
65,000.00
2041
1,142,547.00
499,261.00
156,315.00
65,000.00
2042
1,124,162.00
471,508.00
99,819.00
65,000.00
2043
1,090,775.00
437,282.00
65,967.00
65,000.00
2044
1,040,595.00
401,425.00
19,953.00
65,000.00
2045
1,056,969.00
357,740.00
1.00
65,000.00
2046
1,054,317.00
322,286.00
1.00
65,000.00
2047
993,699.00
294,310.00
1.00
65,000.00
2048
981,426.00
245,866.00
1.00
65,000.00
2049
976,554.00
235,934.00
1.00
65,000.00
2050
936,366.00
177,584.00
1.00
65,000.00
2051
927,779.00
149,989.00
1.00
65,000.00
2052
875,815.00
117,811.00
1.00
65,000.00
2053
877,872.00
66,926.00
1.00
65,000.00
2054
926,357.00
22,762.00
1.00
65,000.00
2055
945,567.00
1.00
1.00
65,000.00
2056
896,467.00
1.00
1.00
65,000.00
2057
902,875.00
1.00
1.00
65,000.00
2058
902,352.00
1.00
1.00
65,000.00
2059
864,491.00
1.00
1.00
65,000.00
2060
837,553.00
1.00
1.00
65,000.00
2061
773,441.00
1.00
1.00
65,000.00
2062
767,977.00
1.00
1.00
65,000.00
2063
744,626.00
1.00
1.00
65,000.00
2064
757,715.00
1.00
1.00
65,000.00
2065
649,740.00
1.00
1.00
65,000.00
2066
681,996.00
1.00
1.00
65,000.00
2067
551,443.00
1.00
1.00
65,000.00
2068
544,648.00
1.00
1.00
65,000.00
2069
519,578.00
1.00
1.00
65,000.00
2070
508,284.00
1.00
1.00
65,000.00
2071
452,708.00
1.00
1.00
65,000.00
© 2007 All Rights Reserved.
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
NASD Members: For internal use or client reporting purposes only.
Appendix C Risk Assessment Questionnaire The Risk Assessment Questionnaire helps determine the most appropriate asset mix for a specific client.
Time Horizon 1. What is your current age? Less than 45 × 45 to 55 56 to 65 66 to 75 Older than 75 2. When do you expect to start drawing income? Not for at least 20 years × In 10 to 20 years In 5 to 10 years Not now, but within 5 years Immediately
Long-Term Goals and Expectations 3. What is your goal for this investment? To grow aggressively To grow significantly To grow moderately × To grow with caution To avoid losing money 4. Assuming normal market conditions, what would you expect from this investment over time? To generally keep pace with the stock market To slightly trail the stock market, but make a good profit × To trail the stock market, but make a modest profit To have some stability, but make modest profit To have a high degree of stability, but make small profit 5. Suppose the stock market performs unusually poorly over the next decade, what would you expect from this investment? To lose money To make very little or nothing × To make out a little gain To make a modest gain To be little affected by what happens in the stock market
© 2007 All Rights Reserved.
Page 13 of 14
Investment Policy Statement
Prepared for:
Prepared by:
January 09, 2007
Dave Matthews
John Mackowiak
Page 14 of 14
NASD Members: For internal use or client reporting purposes only. Short-Term Risk Attitudes 6. Which of these statements would best describe your attitudes about the next three years' performance of this investment? I don't mind if I lose money I can tolerate a loss I can tolerate a small loss × I'd have a hard time tolerating any losses I need to see at least a little return 7. Which one of these statements would best describe your attitudes about the next three months' performance of this investment? Who cares? One calendar quarter means nothing I wouldn't worry about losses in that time frame × If I suffered a loss of greater than 10%, I'd get concerned I can only tolerate small short-term losses I'd have a hard time stomaching any losses
© 2007 All Rights Reserved.