Objective

FFP 5603 Extra Credit Assignment:

Create Your Own Investment Policy Statement (IPS)

30 total points possible

One of the most paramount parts of the investment process is creating a comprehensive Investment Policy Statement (IPS) that accurately reflects the goals, needs, and preferences of the investor. The purpose of this assignment is to create your own personal IPS which you can use as a guide to manage your investment portfolio. Feel free to get as creative as you want with this.

What is an Investment Policy Statement?

An investment policy statement is a written document that defines how an investment portfolio should be managed. It typically includes details about investment objectives, potential investment strategies (active vs. passive management), risk tolerance, types of investment asset classes, selection criteria for investments, and monitoring and rebalancing procedures.

The main purpose is to make sure guiding policies and principles are in place during moments of market uncertainty. This ultimately helps verify that decisions are consistent with your goals and desires. Ideally, the document should be referred to anytime there is a temptation to act opposite to the policy, especially when emotions might be clouding your judgment.

How to Create Your Own IPS

If you do not already have a written set of guidelines for your portfolio, you should go ahead and put your investment plans in writing. While its important to keep it simple, every IPS should answer the following questions:

Investment Objectives

What are your financial goals?

What is your time horizon to funding the goals?

How much will you need to fund the goal each year?

Investment Philosophy

What is most important to you as an investor?

What is your comfort level for risk? How will you measure your risk tolerance?

Will your portfolio contain passive or actively managed strategies or perhaps a

combination of both?

What are your allowable asset classes (e.g. stock, bonds, real estate, etc.)?

What is your target asset allocation mix (e.g. 90/10, 80/20, etc.)? Will this vary by

account type and purpose?

How much of a loss are you comfortable with over various time frames (1 month, 1 year, 5 years, etc.)?

Are there certain securities in your portfolio that have trading restrictions?

Does your current employer require approval for certain trading activities?

Do you have any special tax considerations?

Do you have any special ESG/Socially Responsible Investing criteria?

Portfolio Monitoring & Review

How much do you intend to invest each month?

What is the expected rate of return for the portfolio?

Are there any upcoming withdrawal and deposit expectations?

What are the benchmarks for the portfolio (e.g. S&P 500, Russell 2000, Blended

Benchmark, etc.)?

What is your plan for investing large lump sums of money?

When will you rebalance your portfolio? Do you plan to use time horizons or

tolerance bands?

How often will you review your investment plan?