We have now completed the first level of our Financial Pyramid-Protection, and can move on to the more excitement part of financial planning; saving and investing. To ensure there are no leaks in your financial plan it is important to have the previous steps completed in the process before moving forward.

Before you head out and start investing you should have a written Investment Policy Statement (IPS), if you have a financial adviser than they would most likely do this with you. If you are a DIY investor than take some time and write out your investment policy.

Here we’ll discuss what an IPS is and some general guidelines. You can also download this Investment Policy Worksheet to help you in the process.

If you want to learn more about investing, check out Excess Return and download a great free Investment Guide E-Book!

What is an Investment Policy Statement?


An Investment Policy Statement is not just for pension funds and large investors, but also for smaller investors; in fact every investor needs to have an IPS. Creating an IPS will force you to put your investment strategies and rules in writing and make you a more disciplined investor. The biggest mistake investors make is getting emotionally involved with their investments, having an IPS will make sure you stick with your original investment plan and not deviate due to market conditions and emotions.

What is Included in an IPS?

It depends on how detailed you would like to have your IPS, but these are some of the basic things to include.

Investment Objectives

In this section you detail what the purpose of the IPS and the portfolio is, what is the goal you want to reach with this portfolio? It includes the time frame for it, how much you contribute on regular bases and the final amount you’ll need. You can make this as detailed as you’d like.

Investment Philosophy

This part outlines your philosophy about investing for this specific portfolio. It includes things like how much risk are you willing to take? How do you feel about trading? What about costs? This is an important part of your IPS as it will serve as your guide when purchasing and selling securities.

Investment Selection Criteria

This section outlines how you determine your investments; will you buy individual stocks and bonds or are you more into mutual funds and etfs? What are important factors when considering investments?

Asset Allocation

We have discussed the importance of asset allocation; remember that 90% of your portfolio variability is due to asset allocation and not individual investments. In this section you will outline your asset allocation.

Reviewing & Rebalancing

Although you can have two different sections for this, in here I just combined them as I believe they both go together. In this section you outline your reviewing guidelines; it does not make sense for an investor to check their portfolio every day or even every week, so decide on how you would like to monitor your investments. Will you review every month or quarter? Perhaps you want to review annually on a specific date?

Usually you would rebalance your portfolio at the same time as you review it, but this may not be the case so outline here how often you will rebalance. By how much can your portfolio deviate from its target asset allocation before you rebalance?


These are some of the basic things to include in your Investment Policy Statement, but of course you can have a more detailed version of this if you wish to do so. However your IPS should at least address these issues. If you do not have an IPS I highly recommend you get one before moving on to the next step, it is crucial to have an IPS and stick with it. You can download this Sample Investment Policy Worksheet and use it in creating your IPS.

If you need more examples of Investment Policy Statements here is one by Canadian Capitalist and one by Four Pillars.

Do you have a IPS? If so, how has it benefited you? Share any other tips you may have.



Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.