Business & Finance

How to Build a Formal Investment Policy

investment policy

Working with a financial advisor is a great step in reaching your financial goals. And creating a plan is the best place to start. 

Take the time to think about what it is you want for your future. Being able to clarify what you’d like to achieve and the actions you want to take will have you headed in the right direction. Though, to keep this long-term planning in order so that you have a guide on your journey, you need to create a formal investment policy statement (IPS). 

An IPS makes a formal policy for your financial investments, taking all factors into consideration. If done properly, it can even be a tool for making future investment decisions. 

Not sure where to start? Here’s how to build a formal investment policy statement. 

Step One: Define Your Purpose – and Your Goals

The first thing you need to do when building a formal investment policy is to define your purpose. What is it you are trying to achieve with this IPS? Are you wanting to expand your wealth? Are you focused on retirement planning? Whatever it is, the purpose needs to be clearly stated. 

Next, you will want to define your goals. Determine what it is you would like to achieve with your strategy and just how much risk you are willing to take. Remember, it is a standard assumption that to receive the greatest return, you are usually taking the biggest risk. 

Step Two: Assess Your Risk Tolerance

Knowing what you are willing to risk will guide you in determining the best investment strategies. Working with a trusted financial advisor, you will be able to decide which will help you to achieve your goals while staying comfortable with the risk. Together, you may even feel that allocating your assets using a combination of different investment types and risks could make the most financial sense. 

Step Three: Focus on the Operational Details

Your formal investment policy statement is going to need to establish all the details of your plan. Who is going to manage your investments? How often will you add new investments? Determine your balancing intervals – or if you will rebalance at all. 

You have put your plan in place and you need to have the confidence that it is moving forward without your constant intervention. All of these operational details need to be in your statement. 

Step Four: Check Your Progress

If you have any type of investment, you are always going to want to follow up on it and check your growth progress. You will also want to look into the performance of your investments so that you can measure their success – or otherwise. You will need to come up with a plan stating the intervals at which you will review the plan and make any updates or changes. 

Your formal investment policy statement should have a timeline for when you are doing this and it should include any and all specifics.

Step Five: Make it Official  

Once you have all of this information planned, it is time to make it official. Write out your formal investment policy. Go over the detailed objectives and confirm that everyone involved with your financial strategy is on board and understands the goals. 

Under the direction of a trusted financial advisor, you are ready to implement your IPS. 

The Investment Counsel Company is ranked as one of the Top 100 Independent Financial Advisors, offering wealth management services to those with $1,000,000 or more in investable assets.