I recently read Winning the Loser’s Game by Charles D. Ellis, and he mentioned the importance of having an Investment Policy Statement. I did some digging and found out more on these few links:
An Investment Policy Statement will consist of a few basic sections:
- Investment Philosophy
- Investment Objectives
- Asset allocation
- Where Funds are held
- Rebalancing plan
- Rules for policy changes
This interests me as I have a rough plan in my mind and have also written it in bits and pieces everywhere but I wouldn’t consider it an Investment Policy Statement.
With an Investment Policy statement in place, my wife and family will be able to understand my investment plans simply. In times of turbulence, I am also able to refer back to it, stick to my plan, and stay the course.
Here is mine:
| Investment Philosophy | Buy and hold long-term passive index ETFs. The market will rise over a long term so time in the market is important. Hold a small allocation of funds as “Fun money” for some action and excitement. Barbell strategy with Crypto allocation. |
| Primary Objective | Sustain my family’s lifestyle with existing funds without selling any investments moving forward. Investments will have to provide at least $xxx annually. My wife’s salary and savings will be our cash buffer. Retirement Portfolio should have at least $xxx to provide the above with a 4% withdrawal rate. |
| Where funds are held | To avoid a single point of failure, a variety of brokerages/institutions are used to hold the portfolio. For cash, they are held in money market funds (Endowus), t-bills and fixed deposits in banks. For the rest of shares/etf, they are held in different brokerages like FSM. |
| Asset Allocation | Cash for emergency fund and war chest – 20% with min $xxx Retirement Portfolio – 70% Fun Money Fund – 5-10% |
| Retirement Portfolio Breakdown | World Index ETF – 40% Bonds ETF – 40% STI – 20% |
| Rebalancing | – Rebalancing will be done twice a year, in July and November. – Rebalancing will include the whole portfolio which includes cash. – Always keep cash at 20% of the portfolio so that we can deploy if the market is bad or cash out if the market is too bullish. |
| Changes in Policy | Any changes to the policy will require a 3-month waiting period unless a fund is liquidated by the fund provider and requires immediate replacement. |
| Charity Fund | $xxx is allocated and set up in a fund for yearly charity purposes. 4% will be withdrawn yearly in November. |
| Other Principles | – Do not sell anything in big crashes, stay the course – Deploy war chest with bear buying plan during crashes – No leverage investments – It is ok to sit in 20% cash. Don’t deploy if you do not see any opportunities |
I have left out some of the more personal portions but the gist of it is included.
Everyone’s financial situation is different but with an Investment Policy Statement in place, it will hopefully provide a clearer path to navigate into the wilds of personal finance and investing.
The Wealth Farmer 
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