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investment policy statement

Also called: investment policy, IPS

A short written plan: goal, horizon, asset mix, contributions, rebalancing rule and what you will do in a fall.

An investment policy statement (IPS) is a short written plan for your money, made before anything goes wrong. One page is enough: the goal and when you'll need the money, the mix of stocks, bonds and cash, how much you add each month, when you rebalance, and what you will (and won't) do when markets fall.

Its value is in the timing. In a calm month it's easy to think clearly about risk; in the middle of a 30% fall it's very hard. A plan written in advance lets your calm self make the decision for your stressed self. It also makes changes deliberate: you change the plan because your life changed (a new job, a child, a shorter horizon), not because of the news.

Funds and professional investors use long versions; for a person, a few lines on a page or in a notes app do the same job. Some people add a small "play" bucket with a cap they choose themselves, say 3–10% of the total, for ideas they want to try, so the rest of the plan stays untouched.

Example

Zapas's "My plan" screen fills one page for a user with a Balanced portfolio. Goal: a down payment on a flat in 15 years. Mix: 60% world stocks, 40% bonds. Contributions: $100 a month by automatic transfer. Rebalancing: only when the mix drifts more than 5 points. In a fall: keep the monthly transfer going and don't sell.

Grace adds numbers from the course's synthetic 40-year history so the user knows what "a fall" can mean: for a 60/40 mix the worst real year was −20% and the deepest fall −30%. The 5-point band rebalanced 10 times in 40 years, against 39 times for yearly rebalancing. Synthetic data, for learning only, not advice.

Common mistakes

  • Writing the plan during a crash, when fear sets the mix.
  • Leaving out the "what I do in a fall" line, the one you'll need most.
  • Changing the plan after the news instead of after a change in your life.
  • Letting the "play" bucket grow past the cap you set.

Learn it in the course