1. Assume Jack and Jacky (J&J) are in their late 50s earning a joint annual income of $130,000 net of taxes. They saved $80,000 for their two childrens college education, who will join college next year and the year after. The fund is in a 529 education account and its use is tax free as long as it is used for educational expenses. They also accumulated $120,000 in an investment earning an average of 9% per year. The fund is invested in stocks and long-term bonds almost 50:50. They own a house that they live in valued at $400,000. They have a decent retirement account in 401K plan and social security benefit. The familys objectives include financing their childrens education over the next several years, paying for yearly vacation for themselves for now and throughout retirement years, and passing final wealth to their children and an environmental protection organization. They want to preserve their investment fund, any savings, and the home for the purpose. They desire to pass two third of their final wealth to their children and one-third to the environmental organizations donation. They plan to retire in six years, and they expect to live approximately for 25 years thereafter.

a) Design an investment policy statement for J&J listing their objectives, liquidity needs, risk tolerance, etc.

b) Determine the percentage allocation of their wealth across select asset classes. Determine what asset classes are suitable for them.