Having a written investment policy statement (IPS), clearly articulating reasons for your long-term asset allocation decisions can be helpful to stay the course in turbulent times.
Charles Ellis: From Winning the Loser’s Game: Timeless Strategies for Successful Investing
- "[An investment] policy is the most powerful antidote to panic. The best shield for long-term policies against the outrageous attacks of acute short-term data and distress are knowledge and understanding - committed in writing. Don’t trust yourself to be completely rational when all around you are driven by emotion. After all, you are human too."
- "A well-written investment policy statement has several advantages:
- It supports a disciplined, consistent execution of the portfolio’s investment strategy. This is particularly important during extremely good or bad capital market environments.
- An investment policy statement provides a defense against “Monday morning quarterbacking,” when prior investment decisions may be second guessed.'
- "Devoting significant time and energy to the science and art of designing long-term portfolio targets increases the likelihood that investors will develop the conviction necessary to maintain a steady long-term course amid the turbulent crosscurrents endemic to security markets."
Having an investment policy which clearly states the reasons for asset allocation decisions, with clear rebalancing ‘rules’, has certainly helped me. Perhaps developing an IPS is something to consider for those who were swayed by the recent market turbulance.
Robert
.