What Is An Investment Policy Statement
It is where an investor lists his investing objectives and goals. It is a guide to an investor’s financial future.
Why Investment Policy Statement Is Important
It is essential in helping an investor stay on track.
My Investment Policy Statement
It took me a while to appreciate the value of IPS. After feeling overwhelmed with investment decisions recently, I decided to make my own. With it, I believe I can avoid losing track of my investment goals. Below is my IPS:
As of: May 30, 2018
Stock Broker: COL Financial Group, Inc.
Investment Objectives: Capital Appreciation and Total Return
Primary Purpose: For Retirement
Risk Profile: Aggressive
Investment Time Horizon: 20 years
Portfolio Allocation: 100% stocks
Dividend Policy: Reinvest
Rebalancing: Not Applicable within the 20-year time frame
Investment Strategy: Passive
Return Expectation: 5% to 10% annual return after costs and inflation
After careful studying, these points affected how I drafted my IPS:
- Stick to a long-term strategy.
- Keep portfolio choices as simple as possible.
- Simplicity in investment strategy (e.g. not rebalancing asset allocation too frequently).
- Reduction of costs and expenses associated with investments.
- Invest in accordance with the only principles that will eliminate substantially all of its excessive costs.
- Get rid of all your money managers.
- Get rid of all your consultants.
- Passive but productive strategy: holding all the stocks and standing firm.
- Don’t do something, just stand there.
- Successful investing is about owning businesses and reaping the huge rewards provided by the dividends and earnings growth of our nation’s corporations.
- To realize the winning returns generated by businesses over the long term, the intelligent investor will minimize to the bare bones the costs of financial intermediation.
- History reveals the remarkable linkage between the cumulative long-term returns earned by business—the annual dividend yield plus the annual rate of earnings growth.
- Over the long term, stock market returns are created by real investment returns earned by real businesses—the annual dividend yield plus their subsequent rate of earnings growth.
- In investing, the winning strategy for reaping the rewards of capitalism depends on owning businesses, not trading stocks.
- The best protection for individual investors from the risks inherent in individual stocks is the broadest possible diversification.
- Common sense suggests that fund owners should control their funds.
- Invest you must. The biggest risk is the long-term risk of not putting your money to work at a generous return.
- Time is your friend. Give yourself all the time you can. Invest even if it’s only a small amount, and never stop. Even modest investments in tough times will help you sustain the pace and will become a habit. Compound interest is a miracle.
- Impulse is your enemy. Eliminate emotion from your investment program. Have rational expectations about future returns, and avoid changing those expectations as the seasons change. Cold, dark winters will give way to bright, bountiful springs.
- Basic arithmetic works. Keep your investment expenses under control. Your net return is simply the gross return of your investment portfolio less the costs you incur (sales commissions, advisory fees, transaction costs). Low costs make your task easier.
- Stick to simplicity. Don’t complicate the process. Basic investing is simple—a sensible asset allocation to stocks, bonds, and cash reserves.
- Stay the course. No matter what happens, stick to your program. It is the most important single piece of investment wisdom I can give to you.
- To earn the highest of returns that are realistically possible, you should invest with simplicity. Where should you begin? Consider that the ultimate in simplicity comes with the additional virtue of low cost.
- Keep costs low.
- Stay in it for the long haul.
- Essence of simplicity: Self-reliant, intelligent, informed investors purchase shares without resorting to an intermediary salesperson or financial adviser.
- When contemplating an investment, think like a prospective owner.
- If, when making a stock investment, you’re not considering holding it at least ten years, don’t waste more than ten minutes considering it.
- Returns decrease as motion increases.
- 4 E’s: The greatest Enemies of the Equity investor are Expenses and Emotions.
- Should you choose to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note the word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important, knowing its boundaries, however, is vital.
- Seriously, costs matter.
- Inactivity strikes us as intelligent behavior.
- His philosophy is simple and stems around two rules:
- Don’t lose money
- Don’t forget rule number one.
- The true investor will do better if he forgets about the stock market.
- The real money in investment will have to be made not out of buying and selling but of owning and holding securities, receiving interest and dividends and increase in value.
- His primary philosophy stemmed around the principle that investments should only be made if they are worth substantially more than they cost. He knew that fluctuations in the market are inevitable and can be advantageous by buying when there is a bargain to be had (i.e. a strong company performed weak in the market) and selling when the holdings are overvalued.
- Get diversified. Come up with a portfolio that covers a lot of asset classes.
- Keep your fees low. Avoid the most hyped but expensive funds.
- Buy and hold? Sure, but don’t forget the hold.
- Low fees.
- Broad diversification.
- Hold, hold, hold.
Some simple, but not easy, advice for good investing and financial planning:
- Diversify widely.
- Keep costs low.
- Rebalance in a disciplined fashion.
- Spend less.
- Save more.
- Make less heroic assumptions about future returns.
- Work less on investing, not more.
- He focuses on simple things (no complex ideas, no jargon, no spreadsheets, just common sense).
- He concentrates his portfolio.
- He does his own research as opposed to reading analyst reports or secondary research.
- He reads SEC filings.
- He doesn’t trade much. He makes investments with a long-term view (5 years plus).
- He generates investment ideas by reading a lot. He built up a base of companies that he understands well and would like to own at the right price.
- He believes that there’s a good chance the volatility of the marketplace will give you the chance to own companies on your watch list.
- He hasn’t done things that are complicated. He’s done things that are really quite simple.
- He downloads 10-K filings (17-A for Philippines) and reads and reads and reads… and thinks and thinks and thinks.
- He views stock as ownership in a business.
- He lets the market volatility work to his advantage.
- He focuses on businesses he thoroughly understands.
- He focuses on companies with staying power. He looks for long-term durability and low rates of change.
- He only invests when the price is attractive, which provides both a margin of safety and favorable prospective returns.
- Buy low and sell high.
- He theorized that in order to be a successful investor, it was best to not over diversify but rather know a few companies and know them well.
- Invest for the long term.
- Less is more.