Investment policy statement

An  (IPS) is a statement that defines your general investment goals and objectives. It describes the strategies that you will use to meet these objectives, and contains specific information on subjects such as asset allocation, risk tolerance, and liquidity requirements.

Alternatively, you could consider using a simpler investing plan (see below):
 * If you find creating a full Investment Policy Statement too complex
 * If your investment objectives do not justify the effort needed to create an Investment Policy Statement

Benefits of using an IPS
Every investor could potentially benefit from having an investment policy statement. It provides the foundation for all your future investment decisions. It serves as a guidepost, identifies goals and creates a systematic review process. The IPS aims to keep you focused on your objectives during short-term swings in the market, and gives you a baseline from which to monitor investment performance of your overall portfolio, as well as the performance of individual fund managers.

If you are using some sort of financial advisor, an IPS outlines the ground rules of the relationship between you and that advisor. And you can use the IPS as a reference to see whether or not your portfolio is achieving your stated goals and objectives. You can also use your IPS to evaluate and review any proposed changes to your investments against your overall objectives.

A properly constructed Investment Policy Statement supports following a well-conceived, long-term investment discipline, rather than one that is based on false overconfidence or panic in reaction to short-term market fluctuations.

Drawbacks of not using an IPS
Someone without a written policy often bases decisions on day-to-day events, which regularly leads to chasing short-term performance that may hinder them in reaching long-term goals. Having a policy encourages you to maintain focus on the long-term nature of investing, especially during turbulent or exuberant times.

Financial account information
This area includes:
 * Where are your financial assets located?
 * How much is in tax-advantaged accounts (IRA, Roth IRA, 401(k), etc) versus taxable accounts?
 * How much will you be contributing to these accounts?

Investment objectives, time horizon, and risk tolerance
Here you list the following:
 * Your short-term financial goals and liquidity needs
 * Your long-term financial goals and retirement
 * Your time-frame for funding these goals
 * The length of time for which you will need these assets
 * Amount of assets required

Asset classes to use and those to avoid
For example:
 * Asset classes you decide that you must include in your overall investment portfolio
 * U.S. Stocks
 * International Stocks
 * U.S. Bonds
 * Asset classes you would rather avoid due to excessive risk, high expenses, or large tax liabilities, and so on. For example:
 * Hedge funds
 * Actively-managed funds with high taxable turnover or distributions
 * Consider under-weighting tech sector due to my employment there

Asset allocation targets and rebalancing ranges
This area lists the following:
 * Your target allocation between stocks and bonds
 * Your target allocation for international investments
 * Any time-frame for altering these allocations
 * The minimum and maximum deviations from these targets that will trigger portfolio rebalancing

Monitoring and control procedures
Here you list:
 * Your frequency of monitoring
 * Your benchmark for comparison of portfolio returns
 * The acceptable deviation from benchmark (amount and time)
 * Any concrete procedures for future changes to IPS, for example:
 * Financial reasons for changing IPS
 * Lifestyle reasons for changing IPS
 * Any reasons not to change IPS (for example, short-term market performance)

Real-world IPS
Fellow Boglehead Sunny was one of the first to post a popular IPS. It may not cover all of the topics necessary for someone with a complicated financial situation, but his IPS is brilliant in its elegance and compactness.

Investing plan
In some cases, a formal investing policy statement may seem too complicated or inconvenient. In that case, you could develop an informal investing plan (also referred to as an investment plan) instead. Whether it is called a policy or a plan, the idea is that you have a clear understanding of managing your investment goals and objectives.

The Bogleheads forum often gets questions such as "I have $50K saved up and I need to know which funds to put it in!". Setting up an investing plan will help answer these questions.

An investing plan can be as easy as following these simple steps:
 * Step 1 - Formulate your goals. Be as specific as possible, realizing that you will make changes as the years go by.
 * Step 2 - Set up a plan for each goal. The plan consists of identifying what type of account you will use to save the money, choosing the amount you will put toward the goal each year, working out an asset allocation likely to reach the goal with the minimum risk necessary, and identifying a plan B for the goal in case the returns you are planning on do not materialize.
 * Step 3 - Select the best (usually lowest cost) investments to fulfill your desired asset allocation. Using all or mostly index funds further simplifies the process.

Some typical goals that can benefit from an investing plan:
 * I want $40,000 for home downpayment by June 30, 2030
 * I want to have enough money to pay the tuition at my alma mater in 13 years when my 5 year old turns 18
 * I want to have $2 million saved for retirement by Jan 1 2050

For a detailed discussion on how to achieve those goals, see.