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My Investor Policy Statement – You Need One Too!

By Baptiste Wicht | Updated: | Investing Fundamentals, Investing

(Disclosure: Some of the links below may be affiliate links)

Having a clearly defined strategy is very good for your investments and finances. It is essential to have goals and a long-term vision.

An Investor Policy Statement (IPS) is a tool helping you do just that. It is a way of writing down why and how you are investing. Your IPS helps you have a clear view of why you are investing and how you should invest in attaining your goals.

When I started investing, I wrote down my Investor Policy Statement. It took me about two hours. It was an excellent exercise for me.

In this article, I show you my IPS and explain precisely the goals of an IPS. Each statement will be different because each investor is different. You can follow my example to start your own. But you still need to think about each point and adapt it for your own needs.

Investor Policy Statement

First of all, what is an Investor Policy Statement (IPS)? It is a set of guidelines for your investing. It will state how you invest and why. It should also state how you will react to some events.

Secondly, why would you need an IPS? The reason is to keep you on the right path when a situation trigger. If you have already thought of the problem and its solution, you know how to react. You do not need to be emotional about it. And emotions in investing are generally a bad thing.

I did not invent the concept! It is a well-known thing. It was at first used between a portfolio manager and the client. This statement was helping the manager invest in the way the client wanted. Since I am my portfolio manager, I am making this statement only between me and me.

I was motivated to write my IPS after reading this post by Mr. Retire In Progress. He was himself inspired by another post by Physician On Fire. I would also recommend you read these two posts if you want more information on the subject.

You will find my Investor Policy Statement below if you want an example. Remember that every IPS is different and should be made for your situation and goals. You should not copy another IPS. However, you can get some inspiration from others’ IPS. So let’s delve into my IPS.

My Investor Policy Statement

Objectives

Strategy

Investment Philosophy

Asset allocation

Drawdown plan

Review events

Conclusion

An Investor Policy Statement can help remove the emotion out of investing decisions. It is very important if you want to avoid investing mistakes. It can be a great exercise to know more about your goals and strategy. It is great to have these things in writing.

Writing my IPS was a great exercise for me. It took me a pretty long time to make it well enough for me. It helps thinking of situations I did not think about before. With my IPS, I can rely on it when I need to make an investment decision. This statement will help me decide without emotion.

For instance, this would have helped me with my portfolio instead of updating it first with more bonds and then again with smaller bond allocation. Now my portfolio is in tune with my IPS. I recommend you do the same exercise and write an IPS.

As I said, your Investor Policy Statement is not set in stone. I will check my IPS each year. If my goals are changing, for instance. Or if I think my strategy is not adapted to the situation anymore. But do not change your IPS to explain a decision! I will update this page when I make changes to my IPS.

What do you think of my IPS? Do you have one?

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Baptiste Wicht started thepoorswiss.com in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. This blog is relating his story and findings. In 2019, he is saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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18 thoughts on “My Investor Policy Statement – You Need One Too!”

  1. Hi there,

    You are doing a great job with the blog. I am excited to read your posts. They are very genuine.
    What happens when you decide to invest and you have already a big amount of cash accumulated (approx. 200K).
    Isn’t it safer to do a DCA in this case? I thought of splitting the total amount over 12 or 18 equal shares and invest every month. At the same time if the market goes down 30-40% I will try to buy the dip with all the remaining money at that time.

    Thanks,
    C. B.

    1. Hi,

      Thanks :)

      Mathematically, it’s not safer no. Since historically the market has been going up more often than going down, it does not make much sense to DCA in general.
      I have an article about DCA.
      Obviously, giving the current state of the market, it’s scary to invest at once, so splitting in 12 shares may make sense. And in the end, the difference wont’ be too big.
      It also depends on how long term you are investing for.

  2. Hi,

    Nice post, one quick question what do you mean by “Money > FI should not be invested in stocks”?

    Thanks,
    Tomas

    1. Hi Tomas,

      It means that once I am Financially Independent, the extra money I get will not be invested in stocks but kept in cash/second pillar/stocks and such.
      But I am not entirely sure about that anymore. I would think that once I am FI AND retired, cash will be better. If not retired, cash may not be that interesting.

      Thanks for stopping by!

  3. Hello!

    Awesome post, although I discovered only now!

    I’ve been wanting to do this for myself for a while. But I feel is really complicated. You made it look very easy in this post, but I’m sure you did many hours of thinking.

    You need to sort out the asset allocation, choose your broker to have the lowest fees, the investment strategy, and so on. If I add to the equation purchasing a house things are really becoming complicated.

    I saw you added purchasing a house as a major event to review the IPS. Any tips strategies for that?

    Anyway, just wanted to thank you for writing this post and share links to others for inspiration. I really need to step up my game and write this!

    Best,
    Marius

    1. Hi TSI,

      Thanks :)

      It’s not that complicated honestly. But it takes time, that’s true! And it is excellent exercise.

      Buying a house means some of your asset allocation will change to Real Estate. And it also means that you need to factor in your mortgage. You need to decide whether you are going to actively amortize the house or not. Things like that :)

      Thanks for stopping by!

      1. Hi, I am already retired, 55 years old. I live in Spain. Can you recommend a split among my investments, i.e. bonds vs stocks, US vs rest of the world, and if possible a straight forward recommendation of ETFs that I may contract. thank you

  4. Very interesting, thanks for the transparency.

    Could you please explain your rationale behind the following 3 statements?

    1) Do not do Dollar Cost Averaging (DCA)

    2) Max out contributions to third pillar

    3) Money > FI should not be invested in stocks

    Thanks and keep up the good work. You have already motivated me to open an account with Degiro and invest in low cost Vanguard ETFs.

    1. Hi Sirob :)

      Thanks :)

      1) DCA consists in not investing lump sum, but spreading the investment in several smaller investment. DCA is a bet that the market will go down. In any given years, there is only a 23% of this happening. You can have a look at this post for more explanation: http://jlcollinsnh.com/2014/11/12/stocks-part-xxvii-why-i-dont-like-dollar-cost-averaging/
      2) You can deduct your third pillar contributions from your taxes. You can read my article about the third pillar for more information.
      3) The idea is that once I reach FI independence, I want to reduce risk on my extra money. Since I may stop working at this point, I will need the money so less risk is better. I was thinking to invest this extra part solely into bonds.

      I’m glad you found out the motivation to start investing :)

      Don’t hesitate if you have more questions.

      1. Thanks for the clarifications and the link. It’s very interesting. Time for me to sit down this weekend and compose my own IPS!

      2. Hello,

        You say you never use DCA but then how and when you invest?
        If you invest monthly a fixed percent of your income that looks like a DCA.

        It’s not the case?

      3. Hi Bogdan,

        This is a very good question. I do not think that is Dollar Cost Averaging (DCA). DCA is when you have a big sum and you buy it in increments. As soon as I have money to invest, I put it in the market. For instance, if I receive a bonus of 10K next year, I will invest directly when possible. I will not wait to average it four times, for instance.

        Does that make any sense?

        Thanks for stopping by :)

  5. Very Smart! Always good to have a plan and stick with it. I haven’t done a full IPS myself but I’d thought of making my goals public like you as an outline for my plan plus it incentives me to stick with it.

    1. Thanks :)

      Yeah, it’s mostly a very good incentive to stick with your own plan :) And a very good exercise to make one in the first place.

      Looking forward to read yours ;)

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