My Investor Policy Statement – You Need One Too!

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We can all agree that having a clearly defined strategy is very good for your investing and your personal finances. It is very important 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 to attain your goals.

It has been a long time now since I wanted to write my Investor Policy Statement (IPS). I just took some time over the last week to write it down completely. It took me about two hours. It was a really good exercise for me.

In this post, I am going to give you my own IPS and explain exactly the goals of an IPS. Each IPS will be different because each investor is different. You can follow my own example in order to start your own. But you still need to think about each point and adapt it for your own needs.

Stay tuned to learn about my Investor Policy Statement!

Investor Policy Statement

First of all, what is an Investor Policy Statement (IPS)? Basically, it is a set of guidelines for your investing. It will state how you are going to 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 already thought of the problem and the solution to it, 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 was helping the manager invest in the way the client wanted. Since I am my portfolio manager, I am doing this statement only between me and me. I was motivated to write my IPS after I read this post by Mr. Retire In Progress. He was himself motivated by another post by Physician On Fire. I would also recommend you read these two posts if you want more information on the subject.

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

The Poor Swiss Investor Policy Statement

Objectives

  • Reach Financial Independence before the age of 50 (2038)
    • Taking into account children
    • Taking into account the possible purchase of a house

Strategy

  • Save at least 50% of income every single year
    • Always consider upkeep costs of every purchase
    • Always compare to make sure things are kept cheap
    • Regularly inspect all recurring bills to see if something can be saved
  • Invest all extra cash at the end of the month
    • The savings should be invested directly at the end of each month
  • Minimize taxes
    • Every year, max out contributions to the third pillar
    • If possible and if interesting, contribute buy-ins to the second pillar
  • Emergency Handling
    • About one month of income should be kept in cash each month
    • This should be used for emergencies before the next income arrives
    • If necessary, credit cards can be used to cover more expensive emergencies
  • Each month
    • Review all assets
    • Update budget dashboards
    • Make sure everything is going according to plan
    • Adapt for next month if necessary

Investment Philosophy

  • Invest mainly in stocks (>80%), then in bonds (<20%)
    1. As a possible alternative, consider real estate investing
    2. As a possible alternative, consider peer-to-peer lending
  • Buy and hold
    • Never try to time the market
    • Only sell when money is necessary
  • Only invest through indexes
    • Do not buy individual stocks
    • Use ETFs
  • Minimize fees
    • Only use no-load ETFs/Funds
    • Minimize transactions costs
    • ETF should be chosen with TER below 0.25%
  • Diversify
    • Investments should cover the entire world
    • Some home bias should be used for the Swiss stock market (20%)
  • Avoid sector bias
  • Be open to 5%-10% more open investment (fun money)
    • In an investment portfolio, not in a retirement portfolio
    • Could be individual stocks, P2P Lending, P2P Real Estate
    • Could be a different kind of fund
    • The fees should still be kept low
  • Do not do Dollar Cost Averaging (DCA)
    • It is not efficient
    • It is betting that the market will go down
  • Invest every month
    • Use investing to rebalance
    • Minimize the number of monthly investments, to lower the costs. Ideally only one per month
    • In case of large planned expenses (such as a car or a house), forego investing
  • In case of large unexpected windfall (>10’000 CHF)
    • No hasty decisions
    • Be aware of taxes (only consider the after-tax number)
    • Only use up to 20%, guilt-free
    • Invest what remains, towards the goal
    • Do not increase lifestyle! Consider maintenance costs.
    • Bonus and ESPP are not a windfall, but regular income
  • In case of very large unexpected windfall (>100’000 CHF)
    • Same as for smaller windfall
    • Only use up to 10%, guilt-free
  • Every year (beginning of the year)
    • Review this document
    • Major rebalance if necessary

Asset allocation

  • 90% Stocks
    • In a broker account and in the third pillar
    • 80% International Stocks
    • 20% Domestic Stocks
  • 10% Bonds
    • In the second pillar only
  • Cash
    • While working, keep at least 2 months of expenses in cash
    • While not working, keep at least 12 months of expenses in cash
  • Money > FI should not be invested in stocks

Drawdown plan

  • Withdraw first pillars in several years
  • Delay social security, if possible
  • Dividends should be used in priority
  • Sell only when necessary
    • Minimize fees

Review events

  • The Investor Policy Statement should be reviewed in-depth when:
    • Having children
    • Buying a house
    • Large windfall
    • Large revenue increase

Conclusion

Here you have it: My Investor Policy Statement!

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

This was a great exercise for me. It took me quite a long time to make it well enough for me. It helps thinking of situations I did not think before. Now that I have got my IPS, I can rely on it when I need to take an investment decision.  This will help me take a decision without emotion. For instance, this would have helped me with my portfolio. Instead of updating it first with more bonds and then updating it again with smaller bond allocation. Now my portfolio is in tune with my IPS. I really recommend you to 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 every beginning of a new 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 just to explain a decision! I will update this page when I do changes to my IPS.

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

About the author

Mr. The Poor Swiss

Mr. The Poor Swiss is the main author behind thepoorswiss.com. In 2017, he realized that he was spending more and more every year, falling into the trap of lifestyle inflation. He decided to cut on his expenses and increase his income. This blog is relating his story and findings. In 2018, he saved more than 40% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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

  1. 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.

  2. 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?

        1. 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 :)

  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!

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