Personal Investment Policy Statement - please review

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Topic Author
balt
Posts: 6
Joined: Thu Mar 23, 2017 12:20 pm

Personal Investment Policy Statement - please review

Post by balt » Mon Aug 12, 2019 2:09 am

Hi everyone,

I am working on my Personal Investment Policy Statement and would appreciate if you could take a look and comment, especially if there are any red flags. Please leave your comment here or in the doc itself.

https://docs.google.com/document/d/15cm ... sp=sharing

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WoodSpinner
Posts: 784
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Re: Personal Investment Policy Statement - please review

Post by WoodSpinner » Mon Aug 12, 2019 10:24 am

Op,

A great start! Here are a few questions I didn’t get answered read8ng your IPS.

- Anticipated savings rate?
- What happens if you need more money than 3.5%
- Are you currently retired or just financially secure?
- How will you evaluate a new investment opportunity?

WoodSpinner

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htdrag11
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Re: Personal Investment Policy Statement - please review

Post by htdrag11 » Mon Aug 12, 2019 12:02 pm

No red flags. Just 2 comments about re-balancing and monitoring frequency. :happy

Topic Author
balt
Posts: 6
Joined: Thu Mar 23, 2017 12:20 pm

Re: Personal Investment Policy Statement - please review

Post by balt » Mon Aug 12, 2019 2:32 pm

WoodSpinner wrote:
Mon Aug 12, 2019 10:24 am
Op,

A great start! Here are a few questions I didn’t get answered read8ng your IPS.

- Anticipated savings rate?
- What happens if you need more money than 3.5%
- Are you currently retired or just financially secure?
- How will you evaluate a new investment opportunity?

WoodSpinner
The savings rate would be 0% as I am already FI and this money should finance my remaining years (and decades) and never be depleted.
I will add a section about what-if I need more than 3.5% or want to invest into something else, thanks for the suggestion!

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WoodSpinner
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Re: Personal Investment Policy Statement - please review

Post by WoodSpinner » Mon Aug 12, 2019 2:51 pm

OP,

Not sure if you have already transitioned to Ireland based ETFs? Or is this still a planned change?


WoodSpinner

Topic Author
balt
Posts: 6
Joined: Thu Mar 23, 2017 12:20 pm

Re: Personal Investment Policy Statement - please review

Post by balt » Mon Aug 12, 2019 2:58 pm

WoodSpinner wrote:
Mon Aug 12, 2019 2:51 pm
OP,

Not sure if you have already transitioned to Ireland based ETFs? Or is this still a planned change?


WoodSpinner
Planning to do it soon. I am mostly in cash at the moment.

EHEngineer
Posts: 773
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Re: Personal Investment Policy Statement - please review

Post by EHEngineer » Mon Aug 12, 2019 10:13 pm

Great work overall. Here are a few points to consider that don't change the big picture. Good luck to you.
****
This line is confusing.
Additionally, funds to cover living expenses are withdrawn from the portfolio using a yearly withdrawal rate of 3.5%. Based on projections, the portfolio should never run out of money.
Are you intending an initial withdrawl of 3.5% then inflation adjust that amount in future years (such that the amoutn withdrawn never decreases? Or, are you talking about withdrawing 3.5% of the then current balance at the end of each year? It sounds like you mean the latter. If the latter, of course the portfolio will never run out of money, why bother stating it?
****
In the allocation section, you have specified ticker symbols. You may want to add a line saying other funds may be used to get exposure to those asset classes. This will allow you use alternative funds at some point in the future if they are more convenient. For example, to minimize trading costs.
****
This line is still confusing:
Rebalancing triggered by deviations from investment targets if any fund moves +-10% relative to the original allocation.
An example would help. IE, If target allocation is 20%, rebalancing bands are a) 18% and 22% or b) 10% and 30%. Percentages of percentages always bother me.

Also, I would pick between annual rebalancing or trigger bands, not both. If you are using triggers, then forcing a rebalancing every year seems unnecessary and may drive tax costs. If it's within the bands, it's OK, leave it be.

Also, It may be helpful to state which currency will be used to compute asset allocation. For convenience you could list where you will find the exchange rate. (See final comments below)
****
Your section on "Monitoring" is should be integrating into "Rebalancing." All Monitoring really does is specify the period of rebalancing. Separating that detail is confusing.
I suggest:
Asset allocation shall be assessed every calendar quarter. If an allocation deviates from its investment target by +-10% relative to the original allocation, rebalance shall be performed. For example: If target allocation is 20%, rebalancing bands are a) 18% and 22% or b) 10% and 30%.
*Note that Swedroe recommends the 5/25 rule. You may want to read about that.
****
The part about multiple accounts needs better definition.
The investments are held in multiple low-cost brokerage accounts. Each account has its pros and cons (see below) but the main idea is to mitigate the risk of any of the brokerage firms going bankrupt. Also, having multiple accounts increases the total amount of government deposit insurance.
How many accounts is sufficient? How many is too many? What is a sufficient amount of government deposit insurance? As brokerages change over time, you may feel compelled to change things, I don't think you have fully explained your goals/requirments.
****
You may want to put dates on the the table of trade fees or put it in an appendix. Those are bound to change over time.
****
This line in "Additional Income" is confusing.
Any accumulated cash exceeding 2 years of living expenses (7% of the total portfolio) will immediately be used to buy additional shares of power-performing assets. 10% of the surplus will be forwarded to charity purposes.
First, any cash that exceeds it's rebalancing limits would be rebalanced. Is this a special rebalancing limit for cash? Does it apply to each currency separately or the sum total of both currencies?
What are power-performing assets?
****
In the currencies section, you state
he base currency in which the funds are denominated doesn’t matter that much because the underlying assets are diversified over many world currencies.
While I agree with the sentiment, you must choose one currency to evaluate your asset allocation. For example, you have specified that you will hold 2.5% USD and 2.5% EUR. If you hold 100 USD and 100 EUR, you must first convert one into the other in order to compute the asset allocation. More denominations means more conversions. It may be helpful to state which currency will be used to compute asset allocation. For convenience, you could specify/link where you will find the exchange rate.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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BeBH65
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Re: Personal Investment Policy Statement - please review

Post by BeBH65 » Tue Aug 13, 2019 6:42 am

IPS come in many flovours and colours. I like yours.
I have added a number of anonymous comments in your doc.
Important to document is the reason why you took a certain decision, in the future, when you want to change, you need to reassess the reasons before changing the decision.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Sinsji
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Re: Personal Investment Policy Statement - please review

Post by Sinsji » Tue Aug 13, 2019 7:13 am

Hey for my education: why do you split the bond portion into 15% EURO hedged and 15% dollar?

My assumption is you don't know how both currencies will develop and you spread your bets :?:
Or is it related to where you (intend) to live?

DecumulatorDoc
Posts: 126
Joined: Sun Jan 28, 2018 7:48 am

Re: Personal Investment Policy Statement - please review

Post by DecumulatorDoc » Tue Aug 13, 2019 8:01 am

Every IPS is different and tailored to the individual. I prefer the big picture, 30,000 foot view and have always limited my IPS to one page. I understand why yours is more detailed with added twist of foreign currency and foreign tax implications not familiar to everyone.

Its yours and should serve you well. I applaud you. Enjoy Croatia, and good luck to your national football team in the next World Cup! :sharebeer

Topic Author
balt
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Joined: Thu Mar 23, 2017 12:20 pm

Re: Personal Investment Policy Statement - please review

Post by balt » Tue Aug 13, 2019 8:15 am

Sinsji wrote:
Tue Aug 13, 2019 7:13 am
Hey for my education: why do you split the bond portion into 15% EURO hedged and 15% dollar?

My assumption is you don't know how both currencies will develop and you spread your bets :?:
Or is it related to where you (intend) to live?
I am not sure where I am going to live in the future - in the past couple of years I was split between Europe and Asia, and that is the main reason for the EUR/USD split. If I would be committed to Europe long term, I would lean towards Euro.

Topic Author
balt
Posts: 6
Joined: Thu Mar 23, 2017 12:20 pm

Re: Personal Investment Policy Statement - please review

Post by balt » Tue Aug 13, 2019 8:17 am

DecumulatorDoc wrote:
Tue Aug 13, 2019 8:01 am
Every IPS is different and tailored to the individual. I prefer the big picture, 30,000 foot view and have always limited my IPS to one page. I understand why yours is more detailed with added twist of foreign currency and foreign tax implications not familiar to everyone.

Its yours and should serve you well. I applaud you. Enjoy Croatia, and good luck to your national football team in the next World Cup! :sharebeer
I will try to reorganize it a bit so that the main points are on the first page.
Thanks!

Topic Author
balt
Posts: 6
Joined: Thu Mar 23, 2017 12:20 pm

Re: Personal Investment Policy Statement - please review

Post by balt » Tue Aug 13, 2019 1:25 pm

Thank you ! I have addressed most of your precious comments
Great work overall. Here are a few points to consider that don't change the big picture. Good luck to you.
****
This line is confusing.
Additionally, funds to cover living expenses are withdrawn from the portfolio using a yearly withdrawal rate of 3.5%. Based on projections, the portfolio should never run out of money.
Are you intending an initial withdrawl of 3.5% then inflation adjust that amount in future years (such that the amoutn withdrawn never decreases? Or, are you talking about withdrawing 3.5% of the then current balance at the end of each year? It sounds like you mean the latter. If the latter, of course the portfolio will never run out of money, why bother stating it?
****
Correct. I have changed it to be 3.5 of the original amount, adjusted for inflation

In the allocation section, you have specified ticker symbols. You may want to add a line saying other funds may be used to get exposure to those asset classes. This will allow you use alternative funds at some point in the future if they are more convenient. For example, to minimize trading costs.
Added
****
This line is still confusing:
Rebalancing triggered by deviations from investment targets if any fund moves +-10% relative to the original allocation.
An example would help. IE, If target allocation is 20%, rebalancing bands are a) 18% and 22% or b) 10% and 30%. Percentages of percentages always bother me.

Also, I would pick between annual rebalancing or trigger bands, not both. If you are using triggers, then forcing a rebalancing every year seems unnecessary and may drive tax costs. If it's within the bands, it's OK, leave it be.

Also, It may be helpful to state which currency will be used to compute asset allocation. For convenience you could list where you will find the exchange rate. (See final comments below)
Done - I have read about and implemented the 5/25 rule and added examples. Switched to once a quarter rebalancing and added USD as the reporting currency.
****
Your section on "Monitoring" is should be integrating into "Rebalancing." All Monitoring really does is specify the period of rebalancing. Separating that detail is confusing.
Done - merged

The part about multiple accounts needs better definition.
The investments are held in multiple low-cost brokerage accounts. Each account has its pros and cons (see below) but the main idea is to mitigate the risk of any of the brokerage firms going bankrupt. Also, having multiple accounts increases the total amount of government deposit insurance.
How many accounts is sufficient? How many is too many? What is a sufficient amount of government deposit insurance? As brokerages change over time, you may feel compelled to change things, I don't think you have fully explained your goals/requirments.
You are right, I have to clearly specify my goals here. Ideally all positions would be insured but only one account used to rebalance, for simplicity. I will think about it and add more details.
****
You may want to put dates on the the table of trade fees or put it in an appendix. Those are bound to change over time.
****
Done - added dates.
This line in "Additional Income" is confusing.
Any accumulated cash exceeding 2 years of living expenses (7% of the total portfolio) will immediately be used to buy additional shares of power-performing assets. 10% of the surplus will be forwarded to charity purposes.
First, any cash that exceeds it's rebalancing limits would be rebalanced. Is this a special rebalancing limit for cash? Does it apply to each currency separately or the sum total of both currencies?
You are right. I have modified that section. Cash should have no special privilege, it can be used while doing the quarterly rebalancing instead.
What are power-performing assets?
That was a typo :-(

In the currencies section, you state
he base currency in which the funds are denominated doesn’t matter that much because the underlying assets are diversified over many world currencies.
While I agree with the sentiment, you must choose one currency to evaluate your asset allocation. For example, you have specified that you will hold 2.5% USD and 2.5% EUR. If you hold 100 USD and 100 EUR, you must first convert one into the other in order to compute the asset allocation. More denominations means more conversions. It may be helpful to state which currency will be used to compute asset allocation. For convenience, you could specify/link where you will find the exchange rate.

Done. All reporting and calculations will be made in USD.

Thanks a million for your comments, they were really helpful! If you have the time, please take another look.

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