In today's challenging and complex economic environment, we believe prudent investment advice is vital to long-term success. One way to ensure that your investments stay on track is by creating an investment policy statement (IPS). An IPS is a written document that outlines your investment goals, risk tolerance, and other important factors that will guide your investment decisions. It is a crucial tool for both individuals and institutions who want to achieve long-term investment success.
An IPS typically includes several key components. First, it outlines your investment goals and objectives. These might include things like generating income, growing your wealth, or preserving your capital. Your goals should be specific and measurable, so you can track your progress over time.
Next, your IPS will outline your risk tolerance. This is an important factor to consider, as it will help you determine the types of investments that are appropriate for your portfolio. Generally speaking, higher-risk investments have the potential for higher returns, but they also come with greater volatility and the potential for losses.
Your IPS will also lay out your asset allocation strategy. This refers to the mix of different types of investments that you will hold in your portfolio. For example, you might have a mix of stocks, bonds, and cash. The specific mix that you choose will depend on your investment goals, risk tolerance, and other factors.
Another important component of your IPS is your investment selection criteria. This refers to the specific investments that you will hold in your portfolio. Your selection criteria might include things like the company's financial health, industry trends, or other factors that you believe are important.
It is also important to include guidelines for monitoring and reviewing your portfolio. This might include regular check-ins with your financial advisor or other benchmarks that you will use to track your progress.
Overall, an IPS is a valuable tool for anyone who wants to achieve long-term investment success. It provides a roadmap for your investments and ensures that your portfolio stays on track to meet your goals. By taking the time to create an IPS, you can feel confident that your investments are working for you.