What is IPS – Investment Policy Statement?


By  Mauricio Dreher | Published 31/07/2018

An IPS – Investment Policy Statement is not just for large investors; in fact every investor should have an IPS. Creating an IPS will force you to put your investment strategies and rules in writing and make you a more disciplined investor. The biggest mistake investors make is getting emotionally involved with their investments, having an IPS will make sure you stick with your original investment plan and not deviate due to market conditions and emotions.

It depends on how detailed you would like to have your IPS, but these are some of the basic things to include:

Investment Objectives
In this section you detail what the purpose of the IPS and the portfolio is, what is the goal you want to reach with this portfolio? It includes the time frame for it, how much you contribute on a regular basis and the final amount you’ll need. You can make this as detailed as you’d like.

Investment Philosophy
This part outlines your philosophy about investing for this specific portfolio. It includes things like how much risk are you willing to take? How do you feel about trading? What about costs? This is an important part of your IPS as it will serve as your guide when purchasing and selling securities.

Investment Selection Criteria
This section outlines how you determine your investments; will you invest into mutual funds or are you more into other investment instruments? What are important factors when considering investments?

Asset Allocation
We have discussed the importance of asset allocation; remember that a big percentage of your portfolio variability may be due to asset allocation and not individual investments.

Reviewing & Rebalancing
In this section you outline your reviewing guidelines; it may not make sense for an investor to check their portfolio every day or even every week, so decide on how you would like to monitor your investments. Will you review every month or quarter? Perhaps you want to review annually on a specific date? Usually you would rebalance your portfolio at the same time as you review it, but this may not be the case so outline here how often you will re-balance. By how much can your portfolio deviate from its target asset allocation before you rebalance?

These are some of the basic things to include in your Investment Policy Statement, but of course you can have a more detailed version of this if you wish to do so. If you do not have an IPS I highly recommend you get one before moving on to the next step.

If you really want to succeed in your investment goals, it is best to work with a CFP – Certified Financial Planner to formulate your IPS, who will help you to implement and stick to a specific investment strategy.

Whenever you are thinking about Investments, don’t just follow your emotions, follow your IPS instead.

Mauricio Dreher

Mauricio has more than 15 years experience in the financial industry, having an internationally recognized certification as Certified Financial Planner. He works with Canfin Financial Group, offering Investments, Insurances, Mortgages, with emphasis in Tax Savings Strategies. Bus: (877) 422-6346 ext. 528 or Cell: (416) 876-3644.

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