This investment management program is offered by Garrett Investment Advisors, LLC (the Advisor).
You (the Investor) will work directly with your financial planner (the Financial Planner) to complete and maintain this Investment Policy Statement (IPS) document.
The purpose of the IPS is to guide you (the Investor) and us (the Advisor and the Financial Planner) as we move forward in the investment management process. The information provided in the IPS will be reviewed on at least an annual basis for material changes.
The Investment Policy Statement (IPS) is the cornerstone of the investment process. The principal reason for developing an IPS is to enable all parties to protect the investment portfolio from ad hoc revisions of a sound, long-term investment policy. Without an investment policy, in times of market turmoil, investors are often inclined to make impromptu investment decisions that are inconsistent with prudent investment principles. The IPS is intended to provide a well-thought-out framework from which sound investment decisions can be made.
This IPS has not been reviewed by any legal counsel and all parties use it at their own discretion. This IPS is not a contract, but is intended to be a summary of the investment philosophy and process that provides guidance to all parties. This IPS reflects the Investor’s current status and wishes regarding the investment of the portfolio. This IPS will be reviewed and revised as needed to ensure it adequately reflects any changes related to the Investor, the portfolio or the capital markets. It is understood that there can be no guarantee about the attainment of the investment objectives, goals or returns outlined herein.
This IPS is intended to comply with all applicable requirements that an experienced investment professional would utilize and with all applicable local, state and federal laws and the Uniform Prudent Investor Act.
The Investor recognizes that some risk must be assumed in order to achieve the investment objective and that higher rates of return are generally associated with higher levels of risk. Stocks have historically had the highest return and highest risk out of these two major investment categories. Bonds generally offer lower returns and lower risk than stocks.
An understanding of risk tolerance helps define an investment strategy that the Investor will feel confident maintaining for the long-term, through market ups and downs.
Various factors influence an Investor’s risk tolerance and mix of investments, such as investment objective, time horizon and personal financial situation. Based on this information and the completed risk tolerance questionnaire, all parties have agreed, that an appropriate risk tolerance category is:
Time horizon can have a significant impact on the investment policy for a portfolio. For example, an Investor with a short-term time horizon may require a more conservative investing style, while an Investor with a long-term time horizon might allow for, or necessitate the need for, a more aggressive investing style.
How long will the Investor be saving?
How long do the savings need to last the Investor?
Based on the Investor’s profile, risk tolerance, investment objective and time horizon, all parties have agreed that an appropriate asset allocation between stocks and bonds for the Investor is:
After reviewing the long-term performance and risk characteristics of various investment categories and balancing the risks and rewards of market behavior, the portfolio will use a broad range of investment categories to achieve the Investor's investment objective. Investment categories may include the following:
From time to time, market movements may cause the portfolio’s investment in various categories to vary from the recommended allocation of stocks and bonds. To remain consistent with the desired allocation of stocks and bonds as established by this IPS, the portfolio will be rebalanced as follows.
Rebalancing bands will be set at +/-5% absolute at the broad asset class level and between +/-10-20% relative for sub asset classes and individual holding targets.
Portfolios are reviewed daily for out-of-tolerance, as well as cash needs, and considered for rebalancing opportunities. It is expected that accounts will normally be rebalanced 2-4 times in a typical calendar year, not accounting for account cash flows.
Capital Gain and Dividend Distributions
Capital gains will be automatically reinvested in the portfolio. Dividends will go to cash (see below) to be used for rebalancing, fee payments, etc.
Cash Target and Ranges
When possible, we believe it is important to remain fully invested while minimizing rebalancing due to cash flows. As such, the standard cash target is 1.00% of the account. However, tax-deferred and tax-exempt accounts may drift between 0.25% and 2.00% cash, while taxable accounts may drift between 0.50% and 3.00% cash.
In addition, account specific targets, ranges and specific “reserves” may be set when account circumstances dictate.
Trade Minimums and Substitutions
In an effort to keep trading costs at a minimum related to account and/or position size, and to seek fully invested portfolios, certain positions or portions of positions may be substituted with an index ETF that trades without transaction costs.
The Advisor will consider factors like short-term vs. long-term capital gains, efficiently spreading tax advantages/disadvantages over the Investor's life and the Investor's current phase (wealth accumulation vs. wealth distribution).
As a general rule, the tax strategy over time is to maintain maximum annual realized capital gains of approximately 1.50% of the account value or $3000 (whichever is higher). However, client cash flow needs and account diversification may require the Advisor/Financial Planner to establish a higher budget with the input of the Investor in certain years.
The Advisor and the Financial Planner will assist the Investor in managing the overall investment process. The Investor will be guided through a disciplined investment process, consisting of:
The Investor will be responsible for providing the following information to the Financial Planner initially, at least annually, and on an ongoing basis as changes occur:
We believe that the key to successful investment management lies within a long-term approach and a sound, consistent research-driven process. We provide professionally managed portfolios focusing on risk management and controlling costs.
We make investment policy decisions using our best judgment to help the Investor achieve their overall financial objectives and goals while minimizing risk exposure. We believe that the appropriate mix of investments across diverse investment categories (i.e. stock vs. bond, US vs. international, large cap. vs. small cap., high quality vs. high yield, etc.) is the primary determinant of portfolio returns and is critical to the long-term success of the Investor’s financial objectives and goals.
While we believe this investment strategy is designed to potentially produce the highest possible return for a given level of risk, it cannot guarantee that an investment objective or goal will be achieved. Some investment decisions made by us may result in loss, which may include the original principal amount invested. The Investor must be able to bear the various risks involved in investing, which may include market risk, interest rate risk, liquidity risk, credit risk, reinvestment risk, duration risk, currency risk and political risk, among others.
Note to Financial Planner:
This IPS can be signed electronically directly below or it can be automatically routed to the client(s) email address(es) provided in the Investor Profile & Summary section above.
IF YOU DO WANT TO AUTOMATICALLY ROUTE this IPS to the client(s) for electronic signature:
1. Select "Yes" below
2. Click "Submit"
IF YOU DO NOT WANT TO AUTOMATICALLY ROUTE this IPS to the client(s), have the client(s) sign electronically directly below and then click "Submit".
Once the signature(s) have been obtained and the document is complete, the Garrett Portfolios Team will upload the final executed version into the appropriate client folder.
The information in this IPS will be reviewed at least annually to confirm that the stated investment objectives are still relevant. It is not expected that the IPS will change frequently.
I have reviewed and approve the information and recommendations above and I agree with the investment policy as outlined in this document. I also authorize Garrett Investment Advisors, LLC to share my personal and/or account information with my Financial Planner (named above in this document).