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find how to calculate client asset allocation and long term expected returns

Date: 1.20.2020 Client Profile Information: Name: Bill and Joyce Owens Address: 123 Any Street, Heartland, ME Client Story FAMILY Bill and Joyce are age 32. At the first meeting we learned that she operates Malta Manufacturing, a company that manufactures friction materials for off-road specialty vehicles. They have one child. Tim, age 2 BUSINESS Joyce owns 75% of the manufacturing company, her brother owns 10% and an unrelated employee shareholder holds the other 15%. The company employs 160 people with annual gross revenues of $22 million and annual net income of $4 million. The company has deposits of $1 million and a $2 million variable line of credit. The line is used to purchase seasonal inventory and equipment and is usually fully paid off within six months. There is no other debt on the company. Joyce inherited the majority interest in the company ten years ago. Joyce has focused on paying down debt and updating critical systems within the company and has not taken significant distributions. There is a full proof agreement between the shareholders regarding the future of the company. The company has a loyal seasoned management team that continues to perform above their competition. The management team lacks the financial capacity at this point to purchase the company. The company should remain competitive with a modern plant, updated critical systems and strong management. Joyce plans to start taking distributions and building up an investment account to help pay for retirement. Joyce plans to sell the business outright and spend time traveling Joyce's CPA is a close friend and advisor. Yet, Joyce does not view him as an expert in estate planning or business valuation. Joyce's CPA does investment management and wants to manage the couple's money. received priotax basis sail has an in Bill and PERSONAL NET WORTH The company represents 70%+ of Joyce's net worth. Joyce has received prior offers greater than $20 million. Joyce believes the business will be worth twice that when she is 50 and ready to retire. The tax basis is about equivalent to it's current value because there was a step up in basis when Joyce inherited it. Outside of the business, Bill has an investment account worth $2 million. Bill has commercial real estate that generates approximately $150.000 of annual cash flow. Bill and Joyce have 401(k) balances of $250,000 and $500,000 respectively. Their residence and vacation home are worth approximately $2 million. Both like sunny and warm Arizona. INVESTMENT STRATEGY Both of them would describe their style as do-it-yourselfers and have had a good investment outcome until 2008-2009. Their accounts are still down 30% and most of account remains in cash. They are willing to take on significant risks in order to grow their investments and are not concerned about income generation as earnings from the company cover their lifestyle needs. However, they expect to live even better in retirement and will need significant assets to meet their retirement goals. ESTATE PLAN Bill and Joyce have not updated their estate plan in 13 years. As a general goal they want to leave at least $10 million for their children (they plan to have another) and pay for the grandchildren's college costs. Bill and Joyce have a Survivor Universal Life with $1 million of death benefit from a cash value life insurance policy. Neither wants to have their children serve as executor or personal representative. They are ready to meet with an attorney and update documents. brey and u Neither wants and Joyce he They have entrusted you to manage $1 million of their portfolio for the next two months and will bring more money over to you if you manage the money within their objectives, guidelines, and constraints. This report will be approximately 3 pages tables not counted), double-spaced, 12-point font. with 1-inch margins and numbered pages. Also, be sure to have a cover page. Background: On the first day of class you were handed a client profile. This client has entrusted you with $1,000,000. As an investment advisor & portfolio manager your objective is to meet or exceed your client's financial objectives while managing risk. You are now writing an investment policy statement describing your client's profile. From this profile you'll develop an investment strategy and asset allocation. At the end of the semester you will write a paper describing how your portfolio is consistent with the client's profile, how you managed the portfolio, and your performance. I am looking for 4 items in your report: 1) Client Profile Early in the report, you will want to describe your client. Discuss the client's age, stage of life, family situation, attitude towards risk, constraints, and the ultimate purpose of their investment income and principal, etc., as discussed in the PowerPoint presentation, Chapter 2, and in class. Don't just regurgitate the Client Profile provided. Use your own words. 2) Recommended Investment Strategy Based on the client profile, recommend a strategy/style to meet your client's investment objectives given their profile. In other words, does your client fear risk and demand a safe, very well-diversified passive portfolio or is your client to some degree risk-seeking and expect a portfolio tilted towards the latest "hot stocks" and low-grade bonds? You should briefly mention the pros and cons of the strategy you select. You may have one overall strategy that is applicable to your overall portfolio, or more likely, you may have a strategy for each asset class. You might want to consider who will make the actual buy-sell decisions? Will the portfolio be actively or passively managed? Will each class be invested in mutual funds/ETFs or by investing in individual stocks? 3) Present an Asset Allocation that is consistent with your Strategy Discuss and indicate (in a table that adds up to 100%) an asset allocation that is consistent with your strategy. In other words, what percentage of your investable wealth ($1,000,000) will be in each of the major asset classes? Consider showing subclasses, expected returns, objective, and horizon, also. Did you consider a top-down approach or bottom-up approach in arriving at this strategy? (Note: Your grade on the final paper in this class depends on your ability to reasonably follow the asset allocation outlined in the Asset Allocation table!) 4) What are your long-term expected returns for each asset class? Indicate the annualized expected returns for each of the asset classes within your portfolio. What will you use for benchmarks

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