Wayne and Cassandra Smith, are considering retirement in ten years so have come to you to review their financial plan. The Smiths, both 51 years old, have one daughter, 18 years old. With their combined after-tax salaries totalling $100,000 a year, they are able to meet their living expenses and save $25,000 after taxes annually. It has been deemed that the present value of these cash flows can be calculated by discounting them by 6% p.a. They expect little change in either their incomes or expenses on an inflation-adjusted basis other than the addition of their daughter's college expenses. Their only long-term financial goal is to provide for themselves and for their daughter's education. The Smiths both wish to retire in 10 years and expect to maintain their current standard of living in retirement.

Their daughter, a talented artist, is now entering an exclusive five-year college program. This program requires a $50,000 contribution, payable now, to the college's endowment fund. Thereafter, her tuition and living expenses, to be paid entirely by the Smiths, are estimated at $40,000 annually for the duration of the program and the present value of this liability can be calculated by discounting the cash flows at 6% p.a.

The Smith's personal investments total $600,000, and they plan to continue to manage the portfolio themselves. They prefer ''conservative growth investments with minimal volatility.'' One-third of their portfolio is in the stock of Cassandra's employer, a publicly traded online education company with a highly uncertain future. The shares have a very low cost basis for tax purposes. The Smiths, currently taxed at 30 percent on income and 20 percent on net realized capital gains, have accumulated losses from past unsuccessful investments that can be used to fully offset $100,000 of future realized gains.

In 10 years, Wayne will receive a distribution from a family trust. The present value of the expected distribution is $300,000 and is held in cash. Wayne receives no income from the trust and has no influence over, or responsibility for, its management.

To fund their requirement and all future needs, the Smiths have asked that their assets be invested so that they can generate a perpetuity of $50,000 per annum. They will withdraw this amount each year to pay for their life expenses.

Prepare a investment policy statement for the Smiths. Your response should include a summary of the return objective, risk objective and constraints that they face.