Page 1 of 10

Investment Policy Statement

Name: Satish Kumar
Email: satestum@outlook.com
Your Risk Capacity Score: 8
Your recommended Risk Exposure is 8% equities funds and 92% fixed income funds.
Please CLICK HERE to review the risk and return data for IFA Index Portfolio 8.

The purpose of this Investment Policy Statement (IPS) is to document all the relevant aspects of IFA's
investing process. In particular, it describes and analyzes the factors that determine your risk capacity. It
also clearly describes the investment strategy to be used to implement the risk exposure specific to your
risk capacity. Once these are agreed upon by you and Index Fund Advisors, Inc.. (IFA), the statement will
provide IFA guidance to manage your investments with a long-term objective and focus. It also provides
you with investment discipline, as opposed to activity brought on by a lack of knowledge, overconfidence,
or panic due to short-term price fluctuations.

I: Risk Capacity
Your primary role as an investor, fiduciary, or trustee is to create and maintain an IPS that specifies the risk
exposure of your investments. The IFA Risk Capacity Survey helps you determine an appropriate risk
exposure by asking questions regarding your:
1. Time Horizon and Liquidity Needs
2. Income and Savings Rate
3. Net Worth
4. Investment Knowledge (and)
5. Attitude toward Risk
The IFA IPS summarizes your Risk Capacity Survey answers and distills the information into an appropriate
risk score from 1 (low risk exposure) to 100 (high risk exposure). Each risk score has a corresponding
prudent investment allocation, standard deviation, and expected return based on long-term historical data.
Your ultimate investment allocation is based on your survey and subsequent discussions about your
answers with an IFA representative. Several surveys may be necessary to establish a final IPS.
Once established, it is then IFA's role to adhere to the policy. We would not expect you to change the policy
unless there is a material change to your personal life or financial circumstances.

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 2 of 10

You should review the explanations of your Risk Capacity Survey answers in order to better understand
your risk capacity score. Each answer and each dimension of risk capacity is assigned a specific weight. We
recommend that you retake the survey once a year and/or whenever your personal or financial
circumstances change.
Time Horizon & Liquidity Needs
The Time Horizon and Liquidity Needs category estimates how rapidly you may need to withdraw money
from your investments. A low score indicates that you may need money soon. A higher score indicates that
it is acceptable for your money to be unavailable for longer periods, like 10 years or more.
Your Answer: 1 E. You indicated that you don't plan to withdraw 20% of your investments for more than 15
years. That is an appropriate time period for a volatile portfolio to achieve its long-term average expected
return. You have a higher capacity for risk than investors who need to withdraw their investments sooner.
Therefore, you achieved the maximum score for this question. See Step 10: Risk Capacity, for a full
explanation of how your time horizon and liquidity needs affects risk capacity.
Your Answer: 2 E. You indicated that you do not plan to withdraw 50% of your investments for 15 years or
more. That is an optimal amount of time for a volatile portfolio to achieve its long-term average expected
return. You received the maximum score on this time horizon question. See Step 10 to learn how Time
Horizon and Liquidity Needs affect Risk Capacity.
Your Answer: 3 A. Younger investors have a longer time horizon for investing. The lower your age, the
longer you have for market cycles to average out to the long-term expected return. This increases your risk
capacity. Your answer "40 or younger" yields the highest score on this question. See Step 10 to learn how
Time Horizon and Liquidity Needs affect Risk Capacity.
Income & Savings Rate
The Income and Savings Rate category estimates your excess income and your ability to add to your
savings. A high score indicates that a large percentage of your income is discretionary and is available for
investing. A low score indicates that you are using all or almost all of your income for ordinary expenses
and not adding to your investments each year.
Your Answer: 14 C. Because your annual living expenses are more than 12% but less than 18% of your
retirement savings, you have a moderate level of risk capacity. You would be able to take on more risk if
your answer was "less than 5%." See Step 10: Risk Capacity.
Your Answer: 15 E. An income of $250,000 or more improves your ability to stay invested in an extended
market correction, such as in 2008 and 2009. Of course, you would be wise to also consider the likelihood
of maintaining that income under those market conditions. Depending on your spending levels, the
probability of needing to withdraw from your long-term investments before retirement should be reduced.
See Step 10: Risk Capacity.
Your Answer: 16 B. Question: Please rate the stability of your income. Your answer: Above average. An
income that has above average stability allows you to take a little more risk in your investment portfolio.
See Step 10: Risk Capacity.
Your Answer: 17 B. You agreed that you expect your income to increase above the rate of inflation, which
has averaged 3.1% over the last 80 years. When income is not increasing annually at the rate of inflation,
purchasing power declines every year. Income and savings is one dimension of measuring an investors
risk capacity. Your answer moderately increases your risk capacity score. See Step 10: Risk Capacity.

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 3 of 10

Your Answer: 18 C. You answered that your long-term investments grew between $25,000 and $50,000 last
year. This includes withdrawals, additions, income, and capital gains. Your answer partially reflects your
savings rate (how much you are adding to your investments each year). We recommend that you save and
invest at least 10% of your annual income. Because your investments have been mildly growing, your risk
capacity is also mildly growing. See Step 10: Risk Capacity.
Net Worth
The Net Worth category estimates your capacity to take various levels of risk with your investments. The
higher your Net Worth, the more risk capacity you may possess.
Your Answer: 4 E. You indicated that the estimated value of your assets minus your liabilities is $250,000 or
more, the answer with the highest value. Even though these investments are not currently liquid (because
they include the equity in your home, your taxable and tax-deferred investments, the equity value of rental
properties, and business ownerships), this estimated value can help an investment advisor understand
your financial situation and better ascertain your net worth. A higher net worth contributes to a higher
capacity for risk. See Step 10 to learn how Net Worth affects Risk Capacity.
Your Answer: 5 E. You indicated that the current value of your long-term investments is $250,000 or more.
You have a high capacity to withstand short-term market volatility. The higher your net worth, the less
concerned you need to be about short-term market volatility. You received the maximum score for this
question. See Step 10 to learn how Net Worth affects Risk Capacity.
Attitude Toward Risk Category
The Attitude Toward Risk Category estimates your feelings about risk. Risk is defined as the possibility of
loss and this category addresses your ability to "stomach" the inevitable decline of any investment subject
to risk. High returns are not available without accepting high risk. A high score suggests that you are
capable of tolerating high risk investing to obtain the potential for higher returns. A low score indicates that
you are risk averse and should invest accordingly for your peace of mind. Your risk attitudes can be derived
from your individual personality, experiences, level of investment knowledge, gaming inclination or a
number of other factors. Of all the categories listed above, this is the most difficult to quantify.
Your Answer: 19 E. You indicated that the worst 12-month unrealized percentage loss you would tolerate is
10%. During the Great Depression, from 7/31-6/32, this portfolio lost 17.54%. Therefore, you may want to
consider Index Portfolio 5 or 10. This one answer significantly reduces your overall risk capacity score. See
Step 8: Riskese.
Your Answer: 20 E. Question: In October 1987, stocks fell by over 20% in one day. If you owned a risky
investment that fell by 20% over a very short period, what would you do? Your answer: Hold on to the
investment. Good answer. Your attitude towards risk increases your risk capacity. If a current event
persuades investors to sell their investments, their risk capacity is probably lower than they originally
thought. Ideally, they should be able to ride the ups and downs of the market through a buy-and-hold
strategy. See Step 10: Risk Capacity.
Your Answer: 21 A. You strongly agreed with the statement, "I am comfortable with a portion of my
portfolio being invested in mutual funds of international and emerging market stocks." Your answer
significantly increases your risk capacity. International markets are inherently riskier than U.S. markets;
therefore, your willingness to accept this risk increases your prospects for higher expected returns. See
Step 9: History.

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 4 of 10

Your Answer: 22 D. You disagreed with the following statement: After a market decline, I prefer to sell off
my riskier assets and put the money into safer assets. Your answer increases your score on this question,
because the best strategy is to buy and hold throughout multiple market cycles. In periods of market
volatility, indexes with documented rewards for the risk taken are expected to have wide variations in
returns. Investors are incapable of identifying the markets peaks and valleys. See Step 8:Riskese.
Your Answer: 23 C. Question: On a scale of 1 to 100, with 100 being the most risk, what is your estimate of
a proper risk exposure for your entire investment portfolio? Your answer: A middle level risk exposure of
60, which has 60% stock mutual funds and 40% bond mutual funds. This portfolio has a standard deviation
of about 10.84%. Its important to us as your investment advisor to understand your perceptions of what
an optimal portfolio looks like for you. Your answer moderately reduces your risk capacity, because your
estimate for your portfolio is slightly conservative. However, based on all the dimensions of your risk
capacity, our assessment may be different than yours. You can discuss these differences in an advisory
session with an index funds advisor. See Step 11:Risk Exposure.
Your Answer: 24 B. When asked if you prefer your investments to be risk free, you said that you agree.
Despite all other measures of your risk capacity, this one answer indicates that you should primarily invest
in short-term fixed income. Investors must accept risk in order to earn a higher return. Your answer
substantially reduces your overall score. Return is the reward for investors when they subject their money
to risk. See Step 11: Risk Exposure.
Your Answer: 25 C. You indicated that you would be comfortable with an $29,696 loss on a $100,000
investment. This is similar to Index Portfolio 60. This is a medium risk investment and therefore would
result in a relatively "middle of the road expected return" compared to the other portfolios over a long time
period. This single answer slightly reduces your overall risk capacity score. Please discuss this question with
an index funds advisor.
Investment Knowledge
The Investment Knowledge category estimates your understanding of the 12-Step Program to Index Funds.
A high score indicates your good understanding of modern financial theories. A low score indicates that
you may want to review the 12-Step Program on our web site.
Your Answer: 6 A. You strongly agree that Mutual Fund Managers that beat their risk-adjusted benchmark
were just lucky. Thus recent performance mutual fund performance should not be a guide to how your
invest. This reflects a strong knowledge of markets and prudent investing. You get the highest point total
for this question. See Step 3 for further details.
Your Answer: 7 C. In this market timing question, you estimated that missing the top 40 investing days over
a 20-year period would have resulted in a gain over the entire time period. Instead of a gain the loss would
have been $857.
Your Answer: 8 B. You guessed that 18 market timing newsletters beat the market average. Actually, none
of them did. Market timing is basically impossible because of the unpredictable flow of news and the fact
that news moves the market. See Step 4: Time Pickers.
Your Answer: 9 A. This question states that $1 invested in the US Total Market grew to $3,054 over the 87year period of 1928-2014. You estimated that $1 invested in a US Small Value Index only grew to $983
during this same time period. Actually, it grew to $25,528. The US Small Value Index has the highest longterm historical return of tracked indexes, which is why IFA tilts their globally diversified equity portfolios
towards small and value companies around the world. See Step 9:History.
Your Answer: 10 C. You guessed that if you missed the ten best days, your total return would have been
3.42%. However, this is a whole 6% higher than the result of subtracting the return of the top ten days
(16.06%) from the return of the whole year (13.48%).

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 5 of 10

Your Answer: 11 C. You thought company growth rate, earnings per share, and analyst reports explained
90% of returns. The correct answer is market, size and value, according to researchers Fama, French and
Davis. Their landmark studies analyzed stock market risk factors and associated returns all the way back to
1929. See Step 8: Riskese, The Dimensions of Stock Returns.
Your Answer: 12 C. You incorrectly guessed that Warren Buffet suggested that the best way to own
common stocks is to invest in the stock market at the bottom and sell out at the top. In his 1997 letter to
shareholders, Warren Buffet actually stated that the best way for both individual and institutional investors
to own common stocks is to invest in index funds.
Your Answer: 13 A. You indicated that you strongly agree with the statement, "Investors who buy and hold
a risk-appropriate portfolio are more likely to outperform investors who frequently trade." You are correct.
A DALBAR study found that during the 30-year period from 1/1985-12/2014, the average equity fund
investor earned a return of 3.79%, while the S&P 500 returned 11.06%. One of the main reasons is that the
average investor traded too often, holding onto a mutual fund for only 2.6 years. See Step 1 to learn the
advantages of buy-and-hold over active trading.
To review an IFA Index Portfolio Index Allocation closest to your score, click on this link Please CLICK HERE
to review the risk and return data for IFA Index Portfolio 8

II: IFA Investment Strategy

IFA uses Modern Portfolio Theory including the work of Eugene Fama and Kenneth French and many
empirical studies to guide its selection of funds and construction of IFA Index Portfolios. The following
studies are particularly relevant:
Harry Markowitz, "Portfolio Selection," Journal of Finance (1952)
William Sharpe, "Capital Asset Prices - A Theory of Market Equilibrium Under Conditions of Risk,"
Journal of Finance (1964)
Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, "Determinants of Portfolio
Performance," The Financial Analysts Journal (1986)
Eugene Fama and Kenneth French, "The Cross-Section of Expected Stock Returns," Journal of
Finance (1992)
Eugene Fama and Kenneth French, "Common Risk Factors in the Returns on Stocks and Bonds,"
Journal of Financial Economics (1993)
Eugene Fama and Kenneth French, "Size and Book-to-Market Factors in Earnings and Returns, "
Journal of Finance (1994)
John Graham and Campbell Harvey, "Market Timing Ability and Volatility Implied in Investment
Newsletter Asset Allocation Recommendations," National Bureau of Economic Research Paper
#4890 (1995)
Eugene Fama and Kenneth French, "Value versus Growth: The International Evidence, " Journal of
Finance (1998)
Laurent Barras, Olivier Scaillet, Russ Wermers, "False Discoveries in Mutual Fund Performance:
Measuring Luck in Estimating Alphas," Journal of Finance, Forthcoming.
Amit Goyal and Sunil Wahal, "The Selection and Termination of Investment Managers By Plan
Sponsors," Journal of Finance, Forthcoming
Scott D. Stewart, CFA, John J. Neumann, Christopher R. Knittel, and Jeffrey Heisler, CFA, "Absence of
Value: An Analysis of Investment Allocation Decisions by Institutional Plan Sponsors," Financial
Analysts Journal (2009)
For a summary of the content of these papers, please see

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 6 of 10

http://www.ifa.com/articles/papers_cited_investment_policy_statement.aspx.

III: Prudent Investor Rule

IFAs approach is consistent with the American Law Institutes "Restatement of the Law, Trust, Prudent
Investor Rule." The rule has been passed into law in 42 states. This is meant as a guideline for the prudent
management of trust assets.
In 1995, the National Conference of Commissioners on the Uniform State Laws adopted the Uniform
Prudent Investor Act as a guideline for states to create their individual laws. It has been made into law in
many states. In California it became law in 1996 under the title of the Uniform Prudent Investor Act. This
rule points out the value of Modern Portfolio Theory. It essentially tells trustees that index funds are the
prudent way to invest trust assets. The rule acts as a legal road map for estate planning attorneys, trustees
of all types of trusts, and investment advisors.
The Reporter's Notes to the Prudent Investor Rule point out the problems with active management.
"Economic evidence shows that from a typical investment perspective, the major capital markets of this
country are highly efficient, in the sense that available information is rapidly digested and reflected in the
market prices of securities. As a result, fiduciaries and other investors are confronted with potent evidence
that the application of expertise, investigation, and diligence in efforts to 'beat the market' in these publicly
traded securities ordinarily promises little or no payoff, or even a negative payoff after taking account of
research and transaction costs. Empirical research supporting the theory of efficient markets reveals that
in such markets skilled professionals have rarely been able to identify under-priced securities (that is, to
out guess the market with respect to future return) with any regularity. In fact, evidence shows that there is
little correlation between fund managers' earlier successes and their ability to produce above-market
returns in subsequent periods."
The Five Principles of Prudence are:
1. Sound diversification is fundamental to risk management and is therefore ordinarily required of
trustees
2. Risk and return are so directly related that trustees have a duty to analyze and make conscious
decisions concerning the levels of risk appropriate to the purposes, distribution requirements, and
other circumstances of the trusts they administer
3. Trustees have a duty to avoid fees, transaction costs and other expenses that are not justified by
the needs and realistic objectives of the trusts investment program
4. The fiduciary duty of impartiality requires a balancing of the elements of return between production
of current income and the protection of purchasing power
5. Trustees may have a duty as well as the authority to delegate as prudent investors would
IV: IFAs Commitment to Uphold the Fiduciary Standard of Care
IFA serves in the capacity of an investment fiduciary. Fiduciaries are required to act with undivided loyalty
to their clients. They are required to disclose how they get paid and reveal any corresponding conflicts of
interest. The Committee for the Fiduciary Standard states the five principles of fiduciary standard, as
follows:
1. Put the client's best interest first
2. Act with prudence; that is, with the skill, care, diligence and good judgment of a professional
3. Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts
4. Avoid conflicts of interest

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 7 of 10

5. Fully disclose and fairly manage, in the client's favor, unavoidable conflicts

V: Asset Class Guidelines

IFA will offer investment options that provide exposure to a broad range of different asset class categories
including foreign and domestic equity and fixed income. The asset classes selected shall be such that,
when taken together in pre-constructed IFA Index Portfolios, participants have an opportunity to realize
market rates of return in their accounts, while controlling risk through selection of a risk- appropriate
portfolio, rebalancing the portfolio allocation, tax loss harvesting when appropriate, and following a glide
path risk reduction program over time.
Brinson, et al. have shown that long-term investment performance is primarily a function of asset
allocation. IFA has reviewed the long-term performance characteristics of various asset classes, focusing on
balancing the risks and rewards over time. The general asset classes below are typically included in IFA
Index Portfolios:
Equity Funds
US Large Cap
US Small Cap
Real Estate Investment Trusts (REITs)
International Developed Markets
Emerging Markets
Fixed Income
A general asset class may not be used if the client requests certain preferred means of implementing their
risk score or if IFA, at its discretion, determines the costs of ownership outweigh the benefits.

VI: Selection of Funds

The studies referenced above have demonstrated that active security selection and market timing
strategies detract from overall total returns because of increased trading expenses, higher management
fees, and lack of diversification. With this in mind, IFA will select fund(s) that follow a passive investment
strategy. The specific fund(s) selected may incorporate one, several, or each of the general asset classes
used in IFA Index Portfolios.

VII: Other Important Considerations

IFA recognizes that its investment advice should be part of an overall financial plan that encompasses tax,
insurance, and estate planning. IFAs tax planning for our clients utilizes asset location which helps to
ensure that after-tax returns are maximized. Also, when deemed appropriate, IFA will engage in tax loss
harvesting which can lower the present value of future taxes paid on capital gains. For tax planning beyond
portfolio issues, IFA recommends that our clients interview several accountants and select one that they
feel comfortable with. A recent guideline from the IRS offers the following tips to help choose a preparer
who will offer the best service for your tax preparation needs:
Find out what the service fees are before the return is prepared. Avoid preparers who base their fee
on a percentage of the amount of your refund or who claim they can obtain larger refunds than
other preparers.
Only use a tax professional that signs your tax return and provides you with a copy for your records.

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 8 of 10

Avoid tax preparers that ask you to sign a blank tax form.
Choose a tax preparer that will be around to answer questions after the return has been filed.
Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with
the service they received?
Check to see if the preparer has any questionable history with the Better Business Bureau, the
states board of accountancy for CPAs or the states bar association for attorneys. Find out if the
preparer belongs to a professional organization that requires its members to pursue continuing
education and also holds them accountable to a code of ethics.
Determine if the preparers credentials meet your needs. Does your state have licensing or
registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public
Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters
including audits, collections, and appeals. Other return preparers can represent taxpayers only in
audits regarding a return signed as a preparer.
Before you sign your tax return, review it and ask questions.
With respect to protection of wealth, IFA counsels our clients to insure themselves against lifes unexpected
events such as death, catastrophic illness, disability, and potential lawsuits. Since IFA does not accept
payments from product providers, IFAs advisors cannot play the role of an insurance salesperson.
Furthermore, IFA counsels our clients to only accept insurance advice from someone who is acting as their
fiduciary. A qualified insurance advisor would have a deep level of knowledge and expertise in the offerings
of the insurance market and which particular products would best serve the clients needs. An additional
aspect of wealth protection is to have a sound estate plan in place. Again, IFA advises our clients to engage
the services of a credentialed and respected member in the field of estate planning law. To summarize,
IFAs goal for your financial plan entails a team of fiduciaries who are acting in your best interest and are
paid only by you.

VIII: Important Disclosures

The results of the Risk Capacity Survey are presented as an automated report based on your answers to
the survey questions. Your final IFA Index Portfolio Index Allocation will be specific to your score and your
preferred method to implement your level of risk. Risk and return data are shown for 100 of the most
commonly implemented IFA Index Portfolios in Figure 3 of each IFA Index Portfolio page.
Once you become a client of IFA, the specific allocations, tax optimization strategies among several
accounts, and various implementation alternatives will be available upon request to your IFA investment
advisor representative.
This report alone does not provide individualized or personalized investment advice and no advisory
relationship has been created as the result of taking this survey. A Client Agreement must be signed with
each client and a copy of SEC FORM ADV Part 2 will be provided prior to the existence of an advisory
relationship.
IFA transacts business, including the rendering of individualized and personalized investment advice, only
where IFA is registered or has filed notice, or is otherwise exempt from registration requirements. IFA is an
investment adviser registered in the United States with the Securities and Exchange Commission.
If you are a trustee of an ERISA plan or Trust and have an existing IPS, by signing this document you
confirm that this IPS does not conflict with your existing IPS. It is also understood that if you do not have an
existing IPS, then this document will serve as your IPS.

IX: Preferences

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 9 of 10

Rebalancing
Each quarter IFA can review your portfolio and determine if it is still within the thresholds recommended
by IFA. If it is not, IFA can automatically execute rebalancing trades designed to rebalance your portfolio
back to the targeted risk level. Rebalancing may cause you to realize capital gains for income tax purposes.
It is your responsibility to inform IFA of any information that may influence the decision to rebalance a
portfolio.
______________ I authorize IFA to rebalance my portfolio(s) according to the description above.
Client Initials
______________ I authorize IFA to rebalance my portfolio(s) according to the description above.
Additional Client Initials
Glide Path
IFA can automatically Glide Path your portfolio, which is a risk reducing investment strategy. In the Glide
Path strategy, IFA will reduce your risk exposure by 1 out of 100 IFA Index Portfolios each year. IFA
implements this change annually, at IFAs discretion and without prior consultation. The new portfolio will
be used as the target allocation in the subsequent quarters rebalance review.
______________ I authorize IFA to Glide Path my portfolio(s) according to the description above.
Client Initials
______________ I authorize IFA to Glide Path my portfolio(s) according to the description above.
Additional Client Initials

X: Signatures
Signature of Client:

__________________________________________

Name of Client:

__________________________________________

Date:

__________________________________________

Signature of Additional Client:

__________________________________________

Name of Additional Client:

__________________________________________

Date:

__________________________________________

Financial Advisor Signature:

__________________________________________

Financial Advisor Printed Name: __________________________________________

Date:

__________________________________________

Please print this IPS for your records.

Your Risk Capacity Score: 8

Your recommended Risk Exposure is 8% equities funds and 92% fixed income funds.
Please CLICK HERE to review the risk and return data for IFA Index Portfolio 8.

https://www.ifa.com/survey/profile/result/

06/11/2015

Page 10 of 10

https://www.ifa.com/survey/profile/result/

06/11/2015