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Family Wealth Management: Seven Imperatives for Successful Investing in the New World Order by Tom McCullough, Mark Haynes Daniell

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Chapter 15

Drafting the Annual Investment Policy Statement and Refining Investment Tactics

Following the determination of high-level family objectives and investment strategy, a practical plan of action must be developed, drafted, and implemented. The investment policy statement (IPS) is perhaps one of the most important documents investing families will create as they manage their wealth.

Investment Universe and the Role of Asset Classes

Once the family and their advisors feel comfortable with the long-term strategy plan, they can start to determine how this plan will be achieved during the coming year—specifically which asset classes they will use to meet their investment return targets within their specified risk levels.

This decision will also be influenced by the family’s experience, income needs, and their ability to handle volatility, complexity, and illiquidity, along with the interests and skill sets of the advisors with whom they choose to work.

Changing Role of Asset Classes

In the new normal, not only has the context and expectation for investment return changed, but the individual asset classes themselves may have an actively evolving role in a portfolio.

Cash, while being nothing more than negative debt in some ways, also plays an additional role as the source of liquidity to meet collateral obligations and loan repayments as well as distributions. As such, cash can be a key component in asset/liability matching calculations, and can play a role as designated collateral ...

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