By Sue Stevens, edits by Tim Wrobel

Investing can feel like a wild roller coaster ride, with ups and downs that can make even the steadiest of hands shake. That’s why having a plan in place, created in advance, is so important. Chasing after hot stocks can lead to getting burned, so it’s crucial to bring discipline into your money management equation and remove fear and emotion from the picture.

One way to achieve this is through an Investment Policy Statement (IPS). Think of it as your personal set of instructions that allow you to navigate your investment journey, even during turbulent times. Having an IPS ensures a disciplined process by explicitly stating how you intend to balance risk and reward. It’s like having a flight plan that guides you through different scenarios. When things get tough, you stick to your IPS, avoiding mistakes driven by emotions. This approach is rooted in evidence-based investment solutions backed by academic research and real-life experience.

Let’s break down the elements you should consider when creating your Investment Policy Statement:

Define the scope:
Determine which accounts your policy covers. You may have different policies for different objectives or different risk tolerances within your household.

Establish your investment process:
Develop a solid process that covers setting goals, identifying the optimal asset allocation based on your objectives and risk tolerance, selecting suitable investments, and deciding how often to monitor and rebalance your portfolio.

Commit to your strategy:
By adhering to a set of standards regardless of market conditions, you increase your chances of avoiding behavioral missteps. Here are a few considerations to ponder:

  • Set your asset allocation: Find the right balance between risk and reward that allows you to sleep well at night and aligns with your goals.
  • Consider tax implications: Depending on your tax bracket, explore tax-managed, tax-exempt, or tax-deferred investment vehicles. Strategically consider where to hold different types of assets for tax advantages.
  • Be mindful of costs: Brokerage costs have significantly decreased, so pay attention to expense ratios of mutual funds or ETFs. If you invest in individual bonds or CDs, ensure the costs are reasonable.
  • Embrace global diversification: Decide how much of your stock and bond allocation you want to invest in foreign markets.
  • Incorporate ESG criteria: If aligning your values with your portfolio is important to you, consider environmental, social, and governance factors in your investment choices. 

Set your asset allocation:
Define the broad asset classes—cash, stocks, and bonds—and establish your target allocation. You can also establish acceptable ranges around these targets to avoid excessive rebalancing.

Determine monitoring and rebalancing frequency:
Surprisingly, less frequent monitoring is often better. Remember, investing is a long-term endeavor, and knee-jerk reactions based on daily market movements can hinder your progress. Rebalancing primarily aims to manage risk rather than maximize returns.

It’s also worth using electronic tools like Morningstar’s portfolio tool ( to monitor your progress. As long as you stay within your target asset allocation parameters, there’s usually no need for immediate action. Conduct an annual review to assess if any adjustments to your policy are necessary based on your changing circumstances.

During the monitoring process, there are several aspects to consider, such as cash requirements, asset allocation bands, tax strategies, and specific financial goals. However, remember that you don’t need to make changes just for the sake of it. Only take action when there’s a genuine need.

By creating a disciplined approach through an Investment Policy Statement, you can navigate the ups and downs of investing with confidence and reduce the impact of emotional decision-making. It’s all about having a clear plan, sticking to your strategy, and periodically reviewing your progress to ensure you’re on the right track.

The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be construed as any form of tax advice, or to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. To the extent that this material concerns investments or securities, it is not intended or written to be construed as any form of investment, financial planning, or other professional advice. Any material that includes or references investment performance is not intended to imply or guarantee any future investment performance; past performance is not indicative of future returns, all investments are subject to risk, and you may lose the principal you invest. You should seek independent advice that is tailored for your specific personal circumstances from a qualified professional before taking any action based on the information contained herein. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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