Investment policy statement

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An Investment policy statement (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.[note 1]

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.

Basic sections of an IPS

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)

Example IPS

Example IPS
Investment objectives: These are my main objectives for my investment program. I have developed them after a review of my financial resources, financial goals, asset allocation, risk tolerance and time horizon.
  • Objective 1: To retire at the age of 57
  • Objective 2: To have an annual income from my investments of at least $45,000 after taxes and in today’s dollars (inflation assumed to be 3.0 percent yearly)
  • Objective 3: To leave a meaningful inheritance for my children
  • Objective 4: To minimize potential tax liabilities
  • Objective 5: To monitor portfolio allocation against holding limits, to benchmark returns against expectations, and to consider revisions to portfolio as personal situation may dictate
Risk tolerance: My ability to tolerate the uncertainties, complexities and volatility inherent in the investment markets has been considered in the development of this investment program. The main factors that have influenced my risk tolerance and asset allocation are: age, present financial condition, specific financial goals, discretionary income and its variability, past investment experience.
Holding limits: My portfolio was developed subject to certain holding limitations. These are limitations on the minimum and maximum percentage investment in each asset class:
  • Large Cap U.S. Equities (15-30 percent)
  • Mid Cap U.S. Equities (10-25 percent)
  • Small Cap U.S. Equities (5-15 percent)
  • Foreign Equities (5-15 percent)
  • REITs (0-15 percent)
  • Inter-Term Govt Bonds (10-25 percent)
  • Corporate Bonds (0-10 percent)
  • Cash and Cash Equivalents (5-20 percent)
Target allocation: Based on my financial resources, financial goals, time horizon, tax status, holding limitations, risk tolerance and expected investment performance a recommended portfolio was determined. The portfolio balances risk and reward and attempts to achieve the stated objectives of the investment program. The initial asset allocation is:
  • Large Cap U.S. Equities (25 percent)
  • Mid Cap U.S. Equities (10 percent)
  • Small Cap U.S. Equities (5 percent)
  • Foreign Equities (15 percent)
  • REITs (10 percent)
  • Inter-Term Govt Bonds (25 percent)
  • Corporate Bonds (5 percent)
  • Cash Equivalents (5 percent)
Selection criteria: Investment portfolios used to implement the investment program shall be subject to specified selection criteria and shall be monitored for adherence to my investment policy guidelines, major changes in the portfolios and comparative performance with similar investments. The expense ratio and overall cost of funds shall be a major point in the selection criteria. To minimize style drift, index funds are preferred, if available, for all asset class.
Review process: My investment performance will be monitored and reported on a quarterly basis and will be compared against the appropriate benchmarks. The investment program will be reviewed at least annually to make sure that it continues to achieve his stated objectives. Since this investment program is long-term in nature, the periodic adjustments made to his investment program should be small.
Rebalancing: The percentage weighting to each asset class within the investment portfolio will vary. The percentage weighting within each asset class will be allowed to vary within a reasonable range of plus or minus an absolute 5 percent or 25 percent of the original allocation amount; whichever is triggered first. To minimize taxable events when rebalancing is required, dividends and net cash inflows will be used to meet the strategic asset allocation targets. If cash flow is not sufficient to meet the target allocation for an asset class, I will decide whether to effect transactions in order to rebalance the asset allocation.

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.[1]

Sunny's IPS
Investment philosophy: "Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
Asset allocation: Maintain overall 60% stock + 40% fixed-income allocation until home purchase to accommodate both short-term and long-term requirements. Assets should be diversified across major asset classes including domestic equity, international equity (20-25% of equities), conventional bonds of short to intermediate term, and TIPS (50% of fixed).
Funds and accounts: Use low cost mutual funds - index funds preferably - which do not overlap and provide maximum diversification across asset classes. Try to assume only market risk as far as possible. Try to shelter tax-inefficient funds in tax-advantaged accounts to reduce tax drag.
Target allocation:
  • VTSMX - Total Stock Market Fund 45% - Taxable account
  • VGTSX - Total Int'l Market Fund 15% - Roth IRA
  • VIPSX - TIPS Fund 20% - Traditional IRA
  • IIBAX - Intermediate Bond Fund 20% - 401k
  • VMMXX - Money Market fund (6 months' expenses) - Taxable account
Other considerations: Automate future contributions wherever possible. Rebalance yearly. No market timing. Exact sub-allocations are not as important as maintaining the overall 60/40 stock/fixed allocation - no need to make things complex in order to meet sub-allocation targets.

Other real-world examples

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.[2]

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 Bogleheads forum topic: "EmergDoc's Investing Plan Thread".


  1. For an interactive course on creating an investment policy statement, see: "Creating Your Investment Policy Statement". Morningstar's Investing Classroom. Retrieved June 5, 2023.

See also


  1. Taylor Larimore (September 18, 2006). "Diehard Sunny Sarkar's beautiful IPS". Retrieved June 5, 2023.
  2. Bogleheads forum topic: "EmergDoc's Investing Plan Thread"

Further reading

External links