Part I Investment Policy Statement Question

Taylor, 50 years old, recently retired and received a 800,000 payment from his employer for early retirement incentive and exercising company stock options. Taylors wife died after a long illness, which resulted in high medical expenses which forced Taylor to liquidate his entire investment to satisfy the expense. Taylor has a living expense of $24,000 and will rise with inflation (about 1 % per year). Tax rate is 30%. Taylor has expressed that he wishes to never work again.

Taylors mother, Renee, is 72 years old and has poor mental health. She has relocated to a long-term care facility. Renees expenses total $42,000 per year and she has a pension income of 18000. She has no investment or assets of value. Taylor, who has no siblings, must cover Renees income shortfall.

Taylors investment advisor, Sarah, has made the following investment policy statement for him:

Taylor Investment Policy Statement:

Return Objective: Taylors main return objective is to the income requirement of 24,000. Taylor needs a return objective of 3% (24,000/800,000) per year

Risk Tolerance: Substantial asset base and low return requirement provide ample resources to support an aggressive growth-oriented portfolio

Time Horizon: Taylor has a single long term horizon when take into consideration.

Short Answer Questions:

What are Taylors main objectives? Do you think Sarahs assessment is accurate?

What do you think its Taylors risk tolerance (in term of above average, average, below average)? Do you think Sarahs recommendation for aggressive growth-oriented portfolio adequate?

What type of time horizon does Taylor have?