Have an Investment Strategy

It’s common for large organizations and foundations to adopt an “Investment Policy Statement” (IPS) that helps guide them through the occasionally volatile world of investing decisions. An IPS can help you, too, as an individual investor, by spelling out strategic aims that you have for your investment funds. An IPS will include general investment and allocation policies and behavioral standards to guide you in using your financial resources to meet life-long goals and objectives.

1. Why should you have an Investment Policy Statement?

Why are you investing? What do you hope to accomplish? An IPS forces you to clearly state the goals and objectives of your investments. The Statement provides a blueprint to help you stay disciplined and focused about your goals and the corresponding strategies. Monitoring your progress against your IPS can serve as feedback about your plans for reaching your goals, and your corresponding investment strategies.

2. Set investment goals and objectives.

Your goals and objectives should be part of your IPS. As with any goal, investment goals should be measurable and attainable. Your goals should also reflect your ideals and values. What do you want to accomplish? What is practical and feasible? Are there certain time periods that are key moments in your life—such as your child starting college? Is Sustainable and Responsible Investing important to you? Your goals should reflect these and other important issues.

3. Understand your risk tolerance.

Take an inventory of yourself and your reaction to large market swings, global economic news and political uncertainty. Know yourself and how you feel in these situations. If global events, such as Brexit or elections leave you unfazed, then you have a high risk tolerance. If not, and you’re a little more skittish, that's okay too.  What’s important is that you know who you are.

4. Develop an asset allocation that reflects your goals and level of risk.

Not everyone should be invested in the same way. Your direct investments should take into account your goals, your age, your comfort level with risk, and your own personal timeline. Your asset allocation should allow you the best opportunity to attain your goals. Investments and securities that are part of your portfolio should reflect all of these variables. Furthermore, your IPS should include a timetable for monitoring your goals, your level of risk, and your asset allocation.

5. Don’t do this alone.

There are plenty of ways to receive guidance on how to create and implement your own IPS. First, do your homework. There are plenty of examples of IPS documents online. Take a look and you'll see that most of the components are similar. Find one that meets your needs. Another way to do this is to consult a Certified Financial Planning™ professional. This person can help you articulate your personal goals and transfer them into an IPS. She can help you determine what is important, measurable, and attainable. And she will help you stick with the policy and monitor it over time. She will become your trusted advisor.

About the Author

Diane Manuel is a former UWM advisor. She worked closely with René for 5+ years, helping grow the Smart Women/Savvy Money Club. In 2021, Diane joined Adasina Social Capital as Director, Foundation & Client Relationships, pursuing her passion of creating investment strategies that support racial and social justice. Diane has been active in service and philanthropy most of her life, from her first job at the Watts–Willowbrook Boys’ & Girls’ Club to current roles with the Carter Center Philanthropy Council and the Women’s Foundation of California. Diane holds a BA from USC and a PhD in Psychology and MBA from Claremont Graduate University. She has authored articles in Investopedia, MarketWatch, and Financial Planning Magazine on finance, women, and philanthropy. An LA native, she enjoys 5Ks, the beach, wine tasting, photography, and walking with friends.