About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
10.2 Investment Policy Statement (IPS) Explained

10.2 Investment Policy Statement (IPS) - 10.2 Investment Policy Statement (IPS) - 10.2 Investment Policy Statement (IPS) Explained

Key Concepts

Purpose of IPS

The Investment Policy Statement (IPS) is a formal document that outlines the investment objectives, constraints, and guidelines for a client's portfolio. It serves as a roadmap for both the client and the investment manager, ensuring that all decisions are aligned with the client's goals and risk tolerance.

Example: A retiree seeking steady income and capital preservation would have an IPS that prioritizes low-risk investments like bonds and dividend-paying stocks, ensuring that the portfolio aligns with their income needs and aversion to risk.

Client Objectives

Client Objectives are the specific financial goals that the IPS aims to achieve. These can include capital preservation, income generation, growth, and legacy planning. Understanding these objectives is crucial for designing a suitable investment strategy.

Example: A young professional saving for a down payment on a house might have an objective of capital growth with moderate risk. Their IPS would focus on equity investments that offer potential for higher returns over the medium term.

Constraints

Constraints are the limitations or boundaries within which the investment strategy must operate. These can include liquidity needs, time horizon, tax considerations, legal and regulatory requirements, and unique client circumstances.

Example: A client who needs to withdraw a significant portion of their portfolio in five years for a child's education would have a liquidity constraint. Their IPS would avoid long-term, illiquid investments like private equity to ensure they can meet this financial obligation.

Investment Guidelines

Investment Guidelines are the specific rules and parameters that govern the selection and management of investments within the portfolio. These can include asset allocation targets, acceptable investment types, risk tolerance levels, and rebalancing strategies.

Example: An IPS might specify that the portfolio should be 60% equities, 30% bonds, and 10% cash, with a maximum allocation of 10% to any single stock. This guideline ensures diversification and risk management within the portfolio.

Performance Evaluation

Performance Evaluation involves setting benchmarks and criteria to assess the effectiveness of the investment strategy. This includes comparing the portfolio's performance against relevant benchmarks and evaluating whether the objectives are being met.

Example: An IPS might include a benchmark of 60% S&P 500 and 40% Bloomberg Barclays US Aggregate Bond Index. The portfolio's performance would be evaluated against this benchmark to determine if it is meeting the client's growth and income objectives.

Review and Update

Review and Update refer to the periodic assessment and modification of the IPS to ensure it remains relevant and effective. Changes in the client's financial situation, market conditions, or investment objectives may necessitate updates to the IPS.

Example: A client who initially had a 10-year time horizon for retirement might need to update their IPS after receiving an inheritance, which changes their financial position and potentially their risk tolerance. The IPS would be revised to reflect these new circumstances.

© 2024 Ahmed Baheeg Khorshid. All rights reserved.