how often do you shrug at your IPS? [Investment policy statement]

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ERMD
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how often do you shrug at your IPS? [Investment policy statement]

Post by ERMD » Fri Mar 03, 2017 1:04 pm

IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
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Re: how often do you shrug at your IPS?

Post by Dottie57 » Fri Mar 03, 2017 1:09 pm

I do my very best to follow the plan.

I also keep a lot in cash and cash equivalents, so my emergency fund is fully funded.

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Re: how often do you shrug at your IPS?

Post by 2comma » Fri Mar 03, 2017 1:21 pm

I treat my IPS more like the constitution, a living breathing document but it does require an act of congress to change it including executive approval and judicial oversight to make sure any violations are legal.
If I am stupid I will pay.

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Re: how often do you shrug at your IPS?

Post by livesoft » Fri Mar 03, 2017 1:22 pm

I wrote my IPS so that I could sandbag.
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Artisan
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Re: how often do you shrug at your IPS?

Post by Artisan » Fri Mar 03, 2017 2:46 pm

My philosophy is if I am going to deviate why have it in the first place.

I know what I should do, I don't need a written reminder.

That said, emergencies do happen. If a big ticket item is an emergent purchase that's fine.

If it's for a discretionary purchase that would be something else.

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pennstater2005
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Re: how often do you shrug at your IPS?

Post by pennstater2005 » Fri Mar 03, 2017 2:52 pm

I only put stuff I know I'll adhere to in there. I think.
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cheese_breath
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Re: how often do you shrug at your IPS?

Post by cheese_breath » Fri Mar 03, 2017 2:58 pm

Artisan wrote:My philosophy is if I am going to deviate why have it in the first place. ...
+1

OP currently has a "wish list", not an IPS.
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tyrion
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Re: how often do you shrug at your IPS?

Post by tyrion » Fri Mar 03, 2017 3:06 pm

Drop under the emergency reserve level? Sure, I suppose. I guess it depends on the purchase.

Skip fully funding Roth IRAs? Never. My IPS says the following (and I adhere to it whenever possible)

• Always contribute the maximum to 401k, Roth x 2, SEP, ESA accounts. If unable to contribute max to all, prioritize in this order: 401k to company match, ROTH, SEP, 401k to max, ESA.

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bligh
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Re: how often do you shrug at your IPS?

Post by bligh » Fri Mar 03, 2017 3:25 pm

I treat my IPS as a guideline not a rule book. Hence every sentence has an implicit "try to" in front of it.

So in the case you mentioned, if a big emergency or big purchase came up such that it depleted my Emergency Fund. I would just prioritize building it back up again as soon as possible.

Btw, personally my emergency fund is really just "Cash Reserves". All money intended for saving goes into that account first, and then gets allocated into any investments and such. As a result these reserves go up and down all the time but I try to keep it in a range. I halt investments if the reserve falls too low, and I resume investing once the reserve goes above a certain threshold.

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Re: how often do you shrug at your IPS?

Post by grettman » Fri Mar 03, 2017 3:33 pm

I admit that I don't have one. At least not written down. I am also very bad at thinking through my AA. In my mind I have the following rules:

1. Fully fund all retirement accounts - 100% equities (401k, Roth, and IRA)
2. Maintain an emergency fund.
3. Maintain 9% of my net worth in CDs.
4. Pay down an extra $2K per month on my mortgage until it is paid off
5. Save for a new car so that I can have it fully funding in 2.5 years

All extra monies after that goes towards saving for vacations and guns!

Kids 529 are mostly funded but if short, I will cash flow the delta since house will be paid for.

That is to the extent of my thinking of "IPS".

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Re: how often do you shrug at your IPS?

Post by DaftInvestor » Fri Mar 03, 2017 3:36 pm

My IPS has my MUST goals and then my STRETCH goals. I ALWAYS hit my MUST but not every year my STRETCH.

OP: sounds like you have mental accounting between must goals and stretch goals.

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Re: how often do you shrug at your IPS?

Post by Phineas J. Whoopee » Fri Mar 03, 2017 9:55 pm

ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
It appears your real Investment Policy is what you do, not what you wrote. What's the point of lying to oneself?
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Re: how often do you shrug at your IPS?

Post by Peter Foley » Fri Mar 03, 2017 10:45 pm

I just looked at ours. It had not been updated in 4 years. We have followed it fairly closely but it did need updating. Asset allocation and withdrawal strategies have not changed but references to specific accounts have changed because of four years of stock market gains.

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Re: how often do you shrug at your IPS?

Post by seamonkey » Sat Mar 04, 2017 12:25 am

An IPS is a commitment to your household, like marriage vows are your commitment to your spouse. When you're fantasizing about breaking your IPS, think about the parallels and the precedents you're setting.

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Re: how often do you shrug at your IPS?

Post by traveltoomuch » Sat Mar 04, 2017 1:05 am

My IPS is an investment plan, not a budget. It dabbles in tax planning, but it doesn't tell me how much to save or spend. It mostly just sets an asset allocation and tells me when its okay to deviate from that. It includes rebalancing details. It includes asset placement details. And it has backstory: how I got to these points. It even states long-term goals as context for these choices.. But it's not a budget. It doesn't require that I earn $X from work, get y% on investments, withdraw $Z every year, etc.
Last edited by traveltoomuch on Sat Mar 04, 2017 10:15 am, edited 1 time in total.

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Re: how often do you shrug at your IPS?

Post by cheese_breath » Sat Mar 04, 2017 9:51 am

traveltoomuch wrote:My IPS is an investment plan, not a budget....
Apparently OP's plan is to dip into the emergency fund whenever the urge hits. What good is a 6 month emergency fund plan if it only covers 2 months of expenses the day you're terminated from your job? I guess maybe better than zero months worth of expenses. :(
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Tycoon
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Re: how often do you shrug at your IPS?

Post by Tycoon » Sat Mar 04, 2017 10:11 am

I don't have an IPS to shrug at.
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Re: how often do you shrug at your IPS?

Post by Wildebeest » Sat Mar 04, 2017 2:37 pm

I enjoyed creating my Investment Policy Statement. https://www.bogleheads.org/wiki/Investm ... _statement .

I thought it was a thing of beauty but then after not looking it for 3 years I had forgotten the password ( I was self conscious about my goals).

Then after creating a new IPS in 2 years my hard drive died and again I had not looked at after creating it (in the second IPS I had dropped the yearly review and rebalancing since I like the exercise but not the follow through) .

I have been without a written IPS now for the last year and if I going to create another one I probably will do a Death book first. viewtopic.php?t=119346.
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FreeAtLast
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Re: how often do you shrug at your IPS?

Post by FreeAtLast » Sat Mar 04, 2017 2:46 pm

Can't do that, because I have never had a written IPS.
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Re: how often do you shrug at your IPS?

Post by pasadena » Sat Mar 04, 2017 3:04 pm

I have been known to use my EF to make up for bad budgeting.

However, my IPS is a bit of a lifeline, or my little inner voice. It keeps me afloat, and keeps me from doing stupid things. Whenever I want to deviate from it, I reread it, and ask myself why do I want to deviate ? Is it an emotional decision, or have the circumstances changed (in which case, I probably should edit the IPS) ?

It's a reminder of what my plan is when I take emotions out of it. Also a way to force my (long term) goals in my face and force me to ask myself what the impact of a decision might be on said goals.

I don't just have an IPS. I have a plan for the year too, which is written based on my IPS's principles. Keeps me from being stupid.

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Re: how often do you shrug at your IPS?

Post by pkcrafter » Sat Mar 04, 2017 3:33 pm

ERMD, either your IPS is too demanding or you are spending beyond your means. You should treat the EF as untouchable. Once it's in place, you don't need to keep funding it, so available money can go to discretionary. Do you believe you need 6 months, or is 4 reasonable? You might set it for 4 mo. but never borrow from it.

As for not fully funding IRAs, that might happen sometimes, but if you are just spending that money on some impulse buying then you should review money management.

Daftinvestor's idea of Must and Stretch might be a good idea for you. Four months Must for EF and 6 months stretch.


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Re: how often do you shrug at your IPS?

Post by Hypersion » Sat Mar 04, 2017 4:08 pm

I use my emergency fund for irregular expenses. I know I need to buy a set of tires for my car but I don't know if I'll need them 12 month from now or 5 years from now. I don't know if my hot water heater will go out this year or last another 10.
Last edited by Hypersion on Mon Mar 06, 2017 4:56 pm, edited 1 time in total.

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ERMD
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Re: how often do you shrug at your IPS?

Post by ERMD » Mon Mar 06, 2017 11:19 am

Phineas J. Whoopee wrote:
ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
It appears your real Investment Policy is what you do, not what you wrote. What's the point of lying to oneself?
PJW
well, because what we do and what we wrote are the same thing the majority of the time. that was kind of the purpose of this post -- to see what proportion of the responses would consider occasional deviations from the IPS to be unacceptable, or "lying to" ourselves. isn't perfect the enemy of good? :happy
cheese_breath wrote: Apparently OP's plan is to dip into the emergency fund whenever the urge hits. What good is a 6 month emergency fund plan if it only covers 2 months of expenses the day you're terminated from your job? I guess maybe better than zero months worth of expenses. :(
i'm not sure why you thought we dip into it "whenever the urge hits", which is certainly not the case. and so what is your argument, exactly? if you ever dip into the emergency fund, there's no point in having one?
traveltoomuch wrote:My IPS is an investment plan, not a budget....
yes, this is largely how we view it, although it includes budgetary items based on many of the publicly shared examples here on the forum when we wrote it a few years back.
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cheese_breath
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Re: how often do you shrug at your IPS?

Post by cheese_breath » Mon Mar 06, 2017 11:36 am

ERMD wrote:
cheese_breath wrote: Apparently OP's plan is to dip into the emergency fund whenever the urge hits. What good is a 6 month emergency fund plan if it only covers 2 months of expenses the day you're terminated from your job? I guess maybe better than zero months worth of expenses. :(
i'm not sure why you thought we dip into it "whenever the urge hits", which is certainly not the case. and so what is your argument, exactly? if you ever dip into the emergency fund, there's no point in having one?....
ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases...
There's my argument. Emergency funds are for emergencies. Are these big ticket items emergencies?
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Re: how often do you shrug at your IPS?

Post by arsenalfan » Mon Mar 06, 2017 11:42 am

I've borrowed 1-2 months from my 12 month EF to buy real estate.

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Re: how often do you shrug at your IPS?

Post by celia » Mon Mar 06, 2017 12:36 pm

I haven't looked at it for a long time but am thinking of re-writing it so it is short and simple so my relatives can follow it if I should "lose my mind" (lose some cognitive reasoning).

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Re: how often do you shrug at your IPS?

Post by inbox788 » Mon Mar 06, 2017 12:37 pm

FreeAtLast wrote:Can't do that, because I have never had a written IPS.
Same here. I've made several drafts, but never seem to be able to complete the task. I keep at it because I believe that having a written plan is better than not having one and those that adhere to that plan do better than those that don't.

Not having one or deviating from one places you at higher risk of failure.

If you don't believe that, why bother with a plan?

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Re: how often do you shrug at your IPS?

Post by conundrum » Mon Mar 06, 2017 1:23 pm

For my spouse and me our IPS represents our long term plan to reach our financial goals. One of the biggest benefits of our IPS is that it keeps us on track and keeps us from investing emotionally and being swayed by every new investment and market trend. We follow our IPS in up markets to prevent us from becoming greedy and making poor financial decisions and in down markets to avoid becoming fearful and making poor financial decisions. In a nutshell our IPS helps us avoid behavioral errors in our investing. To us, one of the greatest advantages over the long term is having an investment plan and sticking to your plan. If we didn't follow our IPS in good times and bad times for us it would be worthless. So we actually follow our IPS to the letter. We can alter our IPS but this involves proposing a change and waiting for 6 months to actually implement our change. Any changes we make in our asset allocation have the same waiting period, are based on changes in our circumstances (our need, ability or willingness to take risk), involving derisking our portfolio (less equities)and are permanent changes. With these guidelines in place we have not changed our IPS in over 5 years.

In essence, if you don't actually follow your IPS, why even bother spending time developing one?

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Re: how often do you shrug at your IPS?

Post by ERMD » Mon Mar 06, 2017 1:31 pm

conundrum wrote: In essence, if you don't actually follow your IPS, why even bother spending time developing one?
this is what i truly don't understand. people seem to view this issue in a very black/white way that makes no sense to me. if you follow your IPS 99% of the time, but not 100% of the time, that makes the endeavor worthless? in that case, it's better not to have one at all?
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cheese_breath
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Re: how often do you shrug at your IPS?

Post by cheese_breath » Mon Mar 06, 2017 3:25 pm

ERMD wrote:
conundrum wrote: In essence, if you don't actually follow your IPS, why even bother spending time developing one?
this is what i truly don't understand. people seem to view this issue in a very black/white way that makes no sense to me. if you follow your IPS 99% of the time, but not 100% of the time, that makes the endeavor worthless? in that case, it's better not to have one at all?
Certainly 99% of the time is better than 50%, or even 98%. But emergencies don't occur on schedule. One could happen that 1% of the time when your fund is down, and then you could find yourself in deep doo-doo.
The surest way to know the future is when it becomes the past.

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Re: how often do you shrug at your IPS?

Post by J295 » Mon Mar 06, 2017 4:45 pm

We follow it.

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Re: how often do you shrug at your IPS?

Post by cfs » Mon Mar 06, 2017 5:08 pm

IPS? I have my Retirement Investment Policy Statement filed somewhere in my laptop. Time for a review. Thanks for reading ~cfs~
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Re: how often do you shrug at your IPS?

Post by MrNewEngland » Mon Mar 06, 2017 5:11 pm

What is an IPS?

I have virtually no money outside of retirement accounts so I'm just winging it.

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ray.james
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Re: how often do you shrug at your IPS?

Post by ray.james » Mon Mar 06, 2017 5:22 pm

My IPS looks something like this. Perhaps it will give clarity for you to know, what you must have/Do (VS) Good to have.
Depending on year I hit 50-80% of each "good to have" goals.

Must have/Do

- Maintain 6 months emergency fund.
- Max 2- Roth + 1 $401k
- Put 2.5K in 529

- No Market timing
- 25% bond/equity floor allocation
- Roughly age in bonds
- No more than 15% changes in asset ratios as P/E reach 30.

- Adhere to Mint budget.

Great to Have
- Put 5k in 529
- Keep 1 year emergency fund.
- Donation targets
- Max second 401k

Stretch goal(Most years this is just empty)
- save for 10K vacation
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: how often do you shrug at your IPS?

Post by cheese_breath » Mon Mar 06, 2017 5:28 pm

cheese_breath wrote:
ERMD wrote:
conundrum wrote: In essence, if you don't actually follow your IPS, why even bother spending time developing one?
this is what i truly don't understand. people seem to view this issue in a very black/white way that makes no sense to me. if you follow your IPS 99% of the time, but not 100% of the time, that makes the endeavor worthless? in that case, it's better not to have one at all?
Certainly 99% of the time is better than 50%, or even 98%. But emergencies don't occur on schedule. One could happen that 1% of the time when your fund is down, and then you could find yourself in deep doo-doo.
Need to correct my response here... The part about emergencies not occurring on schedule in correct. But the part about the EF being down 1% of the time is incorrect. For example let's say you raid your EF for a large purchase, and it takes two months to replenish it. That means the fund is below it's target value 17% of the year, not 1%.
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Re: how often do you shrug at your IPS?

Post by Phineas J. Whoopee » Mon Mar 06, 2017 5:41 pm

ERMD wrote:...
this is what i truly don't understand. people seem to view this issue in a very black/white way that makes no sense to me. if you follow your IPS 99% of the time, but not 100% of the time, that makes the endeavor worthless? in that case, it's better not to have one at all?
It's your own plan you created for your very own self. May there come times when the situation changes so much you can't follow it? Sure.

But what's the point of writing a plan for yourself, to meet your long-term goals as you personally defined them, then not using it? I'm not sure I buy spending down your emergency reserve by half or more and not putting the legal maximum into your Roth IRAs so you can spend more means following your plan 99% of the time. Maybe your reserve is too big, and your Roth IRA ambitions are too big.

You're using 99% vs. 100% to accuse us of suggesting something is worthless. Surely somebody with an MD-level education doesn't need to be told to avoid illogical leaps.

You're not even close to following your plan, as you've described it and your behavior. Is, say, 63% a shade of gray? Yes. Does it indicate your plan is overly ambitious for you?

If you want to spend more then spend more.

If you want to write a statement of aspirational financial objectives without a realistic path to get there you're free to do so.

PJW
Last edited by Phineas J. Whoopee on Mon Mar 06, 2017 6:19 pm, edited 3 times in total.

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Re: how often do you shrug at your IPS?

Post by cfs » Mon Mar 06, 2017 5:47 pm

MrNewEngland wrote:What is an IPS? . . .
See the link and good luck!

https://www.bogleheads.org/wiki/Investm ... _statement

Thanks for reading ~cfs~
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Re: how often do you shrug at your IPS?

Post by Fallible » Mon Mar 06, 2017 6:27 pm

ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
Just because a plan is written down and called an IPS doesn't mean it's perfect, or will never need correcting or updating. This is why I think it's good to include the reasons for investing a certain way. Then, if you find yourself failing to follow an IPS, you can revisit those reasons and determine whether your original thinking was perhaps unrealistic. And if you make changes, write down the reasons for that, too.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: how often do you shrug at your IPS?

Post by SGM » Tue Mar 07, 2017 4:38 am

I don't look at my IPS, because it is internalized. I have not had an emergency fund as I am willing to sell assets to cover emergencies.

I have followed through on strategies regarding SS delay, spousal benefits and Roth conversions. I have cut back ownership of individual stocks considerably and am getting close to the time when I will ladder some SPIAs to the mix. My AA is more conservative in retirement, but not as conservative as most BHs. I am aware of Mike Tyson's attitude toward plans, but I know how to duck. :wink:

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Re: how often do you shrug at your IPS?

Post by randomizer » Tue Mar 07, 2017 4:47 pm

Emergency funds: my savings goals are probably too aggressive, so I have trouble keeping this up where it needs to be. Going to be tweaking saving rate (and also how much I keep on hand for emergencies) as part of house purchase which is coming up soon.

Asset allocation: I've stuck to the plan like glue. A year ago, after much consideration, I decided to alter my glide path (not motivated by changes in market conditions or anything, but because I became aware of other ways of approaching the subject; previously I had just aped Vanguard's Target Retirement fund glide paths).
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Re: how often do you shrug at your IPS?

Post by itstoomuch » Tue Mar 07, 2017 4:58 pm

Prior to 2008, not enough.
After 2008 -2012. None
2012+, it varies. :greedy
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Re: how often do you shrug at your IPS?

Post by Artisan » Tue Mar 07, 2017 5:32 pm

ERMD wrote:
conundrum wrote: In essence, if you don't actually follow your IPS, why even bother spending time developing one?
this is what i truly don't understand. people seem to view this issue in a very black/white way that makes no sense to me. if you follow your IPS 99% of the time, but not 100% of the time, that makes the endeavor worthless? in that case, it's better not to have one at all?
To me it's like being a "little" pregnant. Either you are or you aren't.

There may be reasons that you cannot follow your IPS at times but in my mind that should be the rare exception.

I view is as a rule not a guideline. If you find yourself violating it then perhaps you should rewrite it to something more appropriate for your situation.

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Re: how often do you shrug at your IPS?

Post by gundlached » Tue Mar 07, 2017 5:47 pm

I never included emergency fund in my IPS. Natural selection has ensured that, by nature, I never ever mess around with the emergency fund--no written statement is necessary.

My IPS is important to me primarily to prevent me from changing my AA on a whim.

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Re: how often do you shrug at your IPS?

Post by Sandtrap » Tue Mar 07, 2017 6:14 pm

conundrum wrote:For my spouse and me our IPS represents our long term plan to reach our financial goals. One of the biggest benefits of our IPS is that it keeps us on track and keeps us from investing emotionally and being swayed by every new investment and market trend. We follow our IPS in up markets to prevent us from becoming greedy and making poor financial decisions and in down markets to avoid becoming fearful and making poor financial decisions. In a nutshell our IPS helps us avoid behavioral errors in our investing. To us, one of the greatest advantages over the long term is having an investment plan and sticking to your plan. If we didn't follow our IPS in good times and bad times for us it would be worthless. So we actually follow our IPS to the letter. We can alter our IPS but this involves proposing a change and waiting for 6 months to actually implement our change. Any changes we make in our asset allocation have the same waiting period, are based on changes in our circumstances (our need, ability or willingness to take risk), involving derisking our portfolio (less equities)and are permanent changes. With these guidelines in place we have not changed our IPS in over 5 years.

In essence, if you don't actually follow your IPS, why even bother spending time developing one?

Drum :sharebeer
+1
Well said.
We spent a lot of thought and research into our IPS to take us from entering retirement and onward. Though short and concise, it has enough margins built into it to adapt and improvise while keeping a steady course toward our long term goals which are portfolio integrity, longevity, and sustainability. Thus, to be taken seriously. It is like a ship already built and stocked with course plotted. :happy
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MathWizard
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Re: how often do you shrug at your IPS?

Post by MathWizard » Tue Mar 07, 2017 6:57 pm

We don't have a formal IPS.

Basically, we have two short-term highly liquid funds, and long term funds
#1 ST normal variation in expenditures, prop tax due, insurance due, vacation.
#2 ST in brick and mortar Credit Union: unplanned expenses or opportunities: car dies, work sends me somewhere and my
wife comes along, child's wedding, also first tier, fast access EF for job loss
and
#3 LT invested: Second Tier EF in ROTH primarily in case job loss, retirement funds.

These are not rigid.

If we had a medical emergency, or my child was overseas during a terrorist attack (happened to a niece on 9/11),
I would spend what I needed to.

If circumstances change or opportunities arise, I may change my mind. I don't need a piece of paper to keep
me disciplined. I suspect most others on this board do not. I suspect that the IPS is more of an agreement between
two partners (usually married couple).

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ERMD
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Re: how often do you shrug at your IPS?

Post by ERMD » Wed Mar 08, 2017 11:49 am

Phineas J. Whoopee wrote: You're using 99% vs. 100% to accuse us of suggesting something is worthless. Surely somebody with an MD-level education doesn't need to be told to avoid illogical leaps.
was i using hyperbole? a bit. but you literally were suggesting there's no point in having an IPS if you ever deviate from it.
Phineas J. Whoopee wrote: You're not even close to following your plan, as you've described it and your behavior. Is, say, 63% a shade of gray? Yes. Does it indicate your plan is overly ambitious for you?
you are misinterpreting my scenario. we've dipped into our emergency fund twice in five years, and it replenishes rather quickly. we've met all of our objects re: 403b x 2, 529 x 2, etc., save for the roth provisions (out of an IPS that's almost two pages). so, re: my response above, i was using less hyperbole than you think.
Phineas J. Whoopee wrote: If you want to write a statement of aspirational financial objectives without a realistic path to get there you're free to do so.
i would direct you to read your own first point of contention at the top.

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ERMD
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Re: how often do you shrug at your IPS?

Post by ERMD » Wed Mar 08, 2017 11:53 am

Fallible wrote:
ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
Just because a plan is written down and called an IPS doesn't mean it's perfect, or will never need correcting or updating. This is why I think it's good to include the reasons for investing a certain way. Then, if you find yourself failing to follow an IPS, you can revisit those reasons and determine whether your original thinking was perhaps unrealistic. And if you make changes, write down the reasons for that, too.
that's a very good point. you could argue that a few of our deviations were capricious and should have been revisited.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: how often do you shrug at your IPS?

Post by iceport » Wed Mar 08, 2017 12:43 pm

ERMD wrote:IPS calls for 6 months of emergent assets before any big ticket spending, but we've found ourselves sometimes dropping to 2 or 3 months in order to make big purchases. or, IPS calls to max out 2 Roths high on the list of budgetary priorities, but we've actually fallen under the cap some years. do people view their IPS as gospel, or an allegorical way of arriving at the "truth"? :happy
ERMD,

You might consider this observation a matter of simple semantics, but I think it's an important distinction. Your OP is not a question of following an IPS — which lays out your rules for investing your assets — but a question of meeting your savings goals. You could be following your IPS to the letter, but failing to save miserably.

In your case, what you described is not a miserable failure to save adequately, but it is a failure of some magnitude nonetheless. (I can't imagine sacrificing the full use of Roth space, for example, just to satisfy some urge for immediate material gratification.) You must keep in mind that all delays in saving, while they might seem small initially, compound over time. If you visualize the typical portfolio growth chart, it's not the front end of the compound growth you are sacrificing, it's the back end, where each increment of time corresponds to much larger increments in portfolio balance.

I think you might be falling prey to a behavioral mistake with respect to delaying your savings. It's the same flawed way of looking at an expense ratio, for example. Sure, in any one given year, a 1% expense ratio doesn't seem to present an urgent crisis. That cost, in isolation, won't compromise your financial objectives. But over time, the effects compound, and that 1% could add up to years of delay in meeting your objectives. It's the same with each purchase you make that cuts into your savings goals. The more often you make that choice — no matter how small it might seem at the time — the greater the damage to meeting your goals.

Image

You would be better served to learn how to shrug off your desire to buy more stuff, rather than shrugging off your desire for financial independence (and seeking permission for it).
"Discipline matters more than allocation.” ─William Bernstein

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Re: how often do you shrug at your IPS?

Post by ERMD » Wed Mar 08, 2017 3:08 pm

iceport wrote:If you visualize the typical portfolio growth chart, it's not the front end of the compound growth you are sacrificing, it's the back end, where each increment of time corresponds to much larger increments in portfolio balance.
this has less impact abstractly, but you're right in that thinking about it concretely (i.e. every X,000 less per year in the Roth sacrafices an estimate Y in earnings at interval Z) and even better, visualizing it in graph form, drives the point across.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: how often do you shrug at your IPS?

Post by Kevin M » Wed Mar 08, 2017 3:42 pm

I have lots of assets outside of retirement accounts, and lots of fixed income, so I don't have an emergency fund, and never have. I had never even hear of an IPS when I was working and contributing to retirement accounts; I just maxed out my contributions each year because it made sense to me.

If I had an EF, I'd want to make sure it was serving its purpose. If its purpose was to cover something as serious as job loss, I think I'd be disinclined to dip into it for any reason. What if I lost my job shortly after dipping into my EF for a major purchase?

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