Developing a Policy Statement

Your Investment Policy Statement commits to writing the guidelines and expectations for your portfolio's management. This plan creates a "meeting of the minds" with you regarding portfolio investment activities and anticipated results, helping eliminate unpleasant surprises in the relationship. (This statement satisfies ERISA's requirements for fiduciary behavior of retirement plan trustees, as well as being a valuable tool for personal accounts.)

We also assist our endowment and charitable remainder trust clients with the development of written spending policy statements. The discipline of a written spending policy statement enables clients to achieve an acceptable balance between the current income needs of one group of beneficiaries and the growth requirements for the benefit of future beneficiaries.  Among other issues, your policy statement will discuss portfolio turnover and tax minimization for taxable accounts.

TURNOVER MINIMIZATION

Turnover (the frequency of portfolio purchases and sales) represents a potentially significant cost of doing business in client accounts. Many academic studies have concluded that attempting to "time the market" frequently leads to high levels of turnover and is counterproductive to long-term, overall account gains. For taxable accounts, high turnover has the added cost of accelerating taxes on capital gains. SIMI’s philosophy calls for minimizing portfolio turnover in all accounts, which becomes easier when thinking in terms of investing in businesses, not just stocks. Utilizing the "business" line of thinking shifts the focus from the distractions inherent in daily stock market activity to the long-term prospects of the business. SIMI strives to maintain portfolio turnover in the range of 20-40% per year, which implies a holding period of 2.5 to 5 years for a typical security.

TAX MINIMIZATION

Strategies used to minimize tax liabilities include:

A well-designed policy statement then contributes to setting your portfolio’s asset allocation...