We believe that every investor should have an investment policy statement. The purpose of the document is to first answer why are you investing in the first place. This should be more personal as it includes specific goals for your money and what your values are. After that, it dictates how the money will be invested.
What to include
- Overall objective – What is the objective of all of your investments? Is it to generate current income or aggressively appreciate for future use? List here what percentage is in stocks and what percentage is in bonds.
- Account objective – What is the objective of each of your accounts? You can list these as a subcategory from the overall objective above.
- Historical Performance – What would a similar benchmark have performed on average over a long period of time. This is the performance that you are aiming for. (Note: Past Performance is no guarantee of future results.)
- Portfolio Volatility – What would a similar benchmark have done during the best and worst markets? This gives you a good gauge for the risk that you are taking. While there is no guarantee, history is one of the few tools we have.
- Responsibilities – What are your responsibilities to keep your investments on track? This may include not making emotional decisions or providing up to date information to your advisor.
Putting together an investment policy statement is not for the purpose of checking a box. It is extremely useful during periods of market volatility. During periods when the market is up or down, it reminds you that this was to be expected and also why you are investing in the first place.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized investment, tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.