The Benefits of Establishing a Personalized Investment Policy Statement
An Investment Policy Statement (IPS) is more than just a document—it’s the blueprint for your financial journey, meticulously outlining your investment goals, strategies, and guidelines. While often associated with financial professionals, an IPS is a powerful tool for anyone looking to take control of their financial future. It helps you crystallize your values, make informed choices, and stay disciplined during market fluctuations.
By crafting a personalized IPS, you’re not just setting rules—you’re empowering yourself to navigate the complexities of investing with confidence and purpose. This clarity and structure ensure that every financial decision you make is aligned with your long-term life goals, providing a steady course in an ever-changing financial landscape.
What is a Personalized Investment Policy Statement?
A personalized Investment Policy Statement (IPS) is a tailored financial document that acts as your personal roadmap for investing. It’s not just a generic template, but a carefully crafted strategy that reflects your unique financial situation, goals, and risk tolerance.
At its core, an IPS outlines how you plan to manage your investments over time. It serves as a guiding light, helping you stay focused on your long-term objectives even when market conditions get turbulent.
Key components of a personalized IPS typically include:
- Investment goals: Clear, specific objectives you want to achieve, such as retiring at age 65 or funding your children’s education.
- Time horizon: The expected duration of your investment strategy.
- Risk tolerance: Your comfort level with potential losses and market volatility.
- Asset allocation: Guidelines for dividing your investments among different asset classes, such as equities, fixed income, and cash.
- Investment selection criteria: Principles for choosing specific investments.
- Monitoring and rebalancing rules: How often you’ll review your portfolio and adjust it over time.
- Constraints or preferences: Any specific limitations or ethical considerations for your investments.
By including these elements, your personalized IPS becomes a comprehensive blueprint for your financial future, helping you make consistent, informed decisions aligned with your long-term goals.
Benefits of Creating a Personalized IPS
Creating a personalized Investment Policy Statement (IPS) offers numerous benefits that can significantly improve your financial journey.
First, it clarifies your financial goals, helping you distinguish between short-term objectives (like saving for a vacation) and long-term aspirations (such as retirement). This clarity allows you to prioritize multiple financial goals effectively, ensuring you’re always working towards what matters most to you.
An IPS also provides a clear investment strategy by establishing asset allocation guidelines tailored to your specific situation. It includes a thorough assessment of your risk tolerance, ensuring your investment approach aligns with your comfort level and financial objectives.
Perhaps one of the most valuable aspects of an IPS is its role as a decision-making framework. It guides your investment choices, helping you stay consistent with your long-term strategy. This framework is particularly crucial during periods of market volatility, as it helps you maintain discipline and avoid emotional decisions that could derail your progress.
Lastly, an IPS enhances accountability by establishing a regular review and adjustment process. This ongoing evaluation allows you to track progress towards your goals and make necessary tweaks as your life circumstances change. By providing a structured approach to managing your investments, a personalized IPS empowers you to take control of your financial future with confidence and clarity.
Steps to Create Your Personalized IPS
Whether you’re creating your own Investment Policy Statement or collaborating with a trusted advisor, the process doesn’t have to be daunting. Here’s a step-by-step approach to help you craft a plan that reflects your values and financial aspirations:
- Assess your current financial situation. Start by taking stock of your assets, debts, income, and expenses. This gives you a clear picture of where you stand financially.
- Define your investment goals. Identify what you’re investing for. Is it retirement, a home purchase, or your children’s education? Be specific about the amount you need and when you’ll need it.
- Determine your risk tolerance. Honestly evaluate how much financial risk you’re comfortable with. Consider factors like your age, income stability, and how you’ve reacted to market fluctuations in the past.
- Establish asset allocation guidelines. Based on your goals and risk tolerance, decide how to divide your investments among different asset classes. This balance is crucial for managing risk and potential returns.
- Set rebalancing rules. Determine how often you’ll review your portfolio and under what circumstances you’ll adjust it to maintain your target asset allocation. This might be annually or when your allocation drifts beyond a certain percentage.
How to Implement and Maintain Your IPS
Once you’ve created your Investment Policy Statement (IPS), it’s time to put it into action.
Start by aligning your current investments with the guidelines outlined in your IPS. This might involve rebalancing your portfolio or making new investments to achieve your target asset allocation.
You’ll also want to set aside time at least once a year to evaluate your investments against your IPS guidelines. Are you on track to meet your goals? Has your risk tolerance changed? Use these reviews to make necessary adjustments to your strategy.
Keep in mind that major life events like marriage, having children, changing careers, or approaching retirement may significantly impact your financial goals and risk tolerance. When these changes occur, don’t forget to revisit your IPS and update it accordingly.
By actively implementing and maintaining your IPS, you can ensure your investment strategy remains aligned with your evolving financial needs and goals, providing a solid foundation for your financial future.
TrueNorth Wealth Is Here to Help
A personalized Investment Policy Statement helps clarify your goals, guides your investment strategy, and empowers you to make informed decisions. By providing a clear framework, it keeps you focused during market fluctuations and ensures your investments align with your long-term objectives.
Remember, an IPS isn’t set in stone—it’s a living document that grows and changes with you. If you’re looking for personalized guidance and support, TrueNorth Wealth is here to help. Our team of fiduciary CFP® professionals will work with you to create a comprehensive Investment Policy Statement and financial plan that helps you make the most of your financial resources, so you can achieve your life’s goals and aspirations.
TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.
