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Investment Policy Statements: 5 Things to Know

Sometimes thought of as important for large organizations and foundations, an investment policy statement (IPS) can help guide you as an individual investor through the sometimes volatile world of investing. By definition, an investment policy statement is a strategy that includes policies and behaviors set in place to guide you toward meeting your life-long goals and objectives using financial resources.

1. Why Should You Have an IPS?

Why are you investing? What do you hope to accomplish? An investment policy statement forces you to clearly state the goals and objectives related to your investment strategy. The statement provides a blueprint to help you remain disciplined and focused about your goals and corresponding strategy. Additionally, through the monitoring process, an IPS can serve as feedback about your plan for reaching your goals and your corresponding investment strategies.

2. Goals and Objectives

Your goals and objectives should be part of your investment policy statement. Like any goal, your investment goals should be measurable and attainable. Additionally, your goals should reflect your ideals and values. What do you want to do? What is practical and feasible? Are there certain time periods that are key moments in your life? Such as a child beginning college? Is investing in sustainable and responsible investing important to you? Your goals should reflect these and other important issues.

3. Understand Your Risk Tolerance

Take an inventory of yourself and your reaction to large market swings, global economic news and political uncertainty. Know yourself and how you feel in these situations. If global events, such as Brexit or elections, leave you unfazed you may have a high risk tolerance. If not, and you’re a little more skittish, that’s okay too.  What’s important is that you know who you are.

4. Develop an Asset Allocation That Reflects Your Goals, Level of Risk

Not everyone should be invested in the same way. Your direct investments should take into account your goals, your age, your comfort level with risk and your own personal timeline. Your asset allocation should allow you the best opportunity to attain your goals. As a result, investments and securities that are part of your portfolio should reflect all of these variables. Furthermore, your investment policy statement should include a timetable for monitoring your goals, your level of risk and your asset allocation.

5. Don’t Do This Alone

There are plenty of ways to receive guidance on how to create and implement your own investment policy statement. First, do your homework. There are plenty of examples of investment policy statements online. Take a look and you’ll see that most of the components are similar. Find one that meets your needs. Another way to do this is to consult a Certified Financial Planning™ professional. This person can help you articulate your personal goals and transfer them into an investment policy statement. She can help you determine what is important, measurable and attainable. And she will help you stick with the policy and monitor it over time. She will become your trusted advisor.


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