Investment Policy Statement for High-Net-Worth Individuals

John and Sarah Williams are high-net-worth individuals in their late 40s, seeking to develop an Investment Policy Statement (IPS) to guide their investment strategy over the next two decades as they approach retirement. They have a combined portfolio of $5 million, which consists of stocks, bonds, and alternative investments. John is a conservative investor, while Sarah is more open to risk. They aim to prioritize capital preservation but also want a growth component to ensure that their portfolio outpaces inflation during their retirement.

The couple's financial goals include funding their children's education, which will require $200,000 over the next five years, and planning for a retirement lifestyle that will cost an estimated $100,000 annually, starting from age 65.

The couple has expressed preferences regarding asset allocation, indicating a desired equity exposure of 40% and a bond allocation of 50%, with the remaining 10% devoted to alternative investments. They have also cited their overall risk tolerance, noting that while they are generally cautious, significant market downturns could alter their risk assessment.

Based on this information, draft an Investment Policy Statement for the Williams’ portfolio that outlines their objectives, risk tolerance, investment constraints, and recommended asset allocation strategy. Provide justifications for your recommendations that reflect both the couple's financial goals and their risk tolerance.