Yard Sales and Investment Policy Statements
We’re well into yard sale season. We’ve cleaned out the garage, closets and under the beds. As the saying goes “If you can’t use it, lose it!”
Maybe it’s time for a portfolio clean up as well. A good place to start is the Investment Policy Statement or IPS.
While a comprehensive financial plan looks at the big picture reviewing both your investments and insurance, the IPS concentrates on each specific investment goal. It’s much more than the results of a risk tolerance questionnaire; it’s your blueprint.
Your Investment Policy Statement is an important document that details your overall investment strategy. The process of creating the IPS establishes your investment objectives and constraints and details how these requirements are to be met. It provides a long-term plan and a basis for making decisions. The plan is not carved in stone – your situation will change over time. But without a clear direction your investment strategy may drift and be at odds with your requirements.
The IPS should discuss the following aspects:
· Your investment profile: Are you conservative, balanced or aggressive? What is your time horizon?
· Your level of investment risk: How would you act under various market situations?
· A recommended portfolio, which will help you, achieve your investment goals as well as key reasons why this portfolio is an ideal solution for you.
· Information on your recommended portfolio including its underlying fund holdings, the asset class weightings (cash, bonds or stocks) as well as the investment managers.
An example where an IPS could be used is when setting up an education plan for a child. A 4-year undergraduate program is estimated to cost over $100,000 in 18 years; so if you’re serious about really helping finance their education, starting a Registered Education Savings Plan, RESP is just the beginning. The IPS will document the plan details, goals and keep both the advisor and client focused on the plan. Regular reviews each year will show if you are on track or not and what changes need to be made.
Volatile markets can unnerve clients, but the IPS can help you stay focused on long-term objectives and prevent yourself from making rash decisions like dumping equities and piling into money-market funds. An Investment Policy Statement, IPS, just makes sense to me. What do you think?
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