Investment Policy Statement

This policy will summarize your goals, risk tolerance, investment objectives and how you would put them to use.

Now that you have outlined your goals and you have an idea of your investment objectives, it is time to write a Personal Investment Policy. This policy will summarize your goals, risk tolerance, investment objectives and how you would put them to use. If you use a financial consultant it probably makes sense to give him or her a copy so they understand your goals.

  1. Your investment objective – Here you want to state your objective, i.e. primary objective is balanced growth (you can use the description in the Investment Objective section of the Guide).
  2. Your investment goals – State your goals and rewards.
  3. What is your time horizon? – How long do you have before you will need the money? How long will it take you to reach your goal?
  4. State your investment guidelines — Outline in this section what investment products you are comfortable in using to reach your goals. Part of this will come from your asset allocation in the investment objective section. For example, if it is a long-term goal, stock mutual funds or individual stocks may work, if it is short term then a savings account or CD may be the best.

Remember, it may not be worth the risk to go from a 5% return to 6.25% return, particularly if you stand to lose part of your principal (investment). In those instances a 5% return is better than putting the money under your mattress and earning 0%. Whether you use mutual funds, stocks, bonds, Certificates of Deposit or a savings account, they all serve a purpose to meet your goals. Remember, investing is a process and it will take time and knowledge to apply those tools to meet your needs.

  1. What investments do not suit you is just as important to outline what you will not buy at this point in time as it is to outline what you will buy. For example,
  • I will not use a margin account,
  • I will not buy stock options…
  • I will not buy any Mutual Fund until I understand what makes up the holdings of the fund and review the track record of the manager.

As silly as this may seem, doing it will help reinforce your understanding of the process and allow you stay on course.

Review this policy once a year to make adjustments.

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