Creating an Investment Policy Statement Plan: A Comprehensive Guide

Embark on a transformative journey with our comprehensive guide to crafting an Investment Policy Statement Plan. Prepare to assess your current financial standing, define your financial aspirations, determine your risk appetite and investment timeline, and make informed decisions about your investment portfolio. Dive into the intricacies of portfolio management and empower yourself to navigate the financial landscape with confidence.

Key Takeaways:

creating an investment policy statement plan

  • Define short- and long-term financial goals, risk tolerance, and investment horizon.
  • Outline asset allocation that aligns with goals and risk tolerance.
  • Specify types of investments to be considered.
  • Document current investments and assess their performance.
  • Establish a target asset allocation to guide portfolio distribution.
  • Define investment selection criteria based on performance, financial health, and management.
  • Set monitoring parameters to track investment performance and trigger reviews or adjustments.
  • Benefits include clear objectives, portfolio roadmap, consistent decision-making, and risk mitigation.

Creating an Investment Policy Statement Plan

Navigating the Road to Financial Success

An investment policy statement (IPS) serves as a roadmap for your financial journey, guiding you towards your investment goals while managing risks. Here’s a definitive guide to creating an investment policy statement plan:

1. Defining Your Investment Objectives

Begin by outlining your investment goals, both short and long-term. Consider your financial aspirations, risk tolerance, and investment horizon. Articulating these objectives will shape the foundation of your IPS.

2. Crafting an Investment Strategy

Based on your objectives, determine an asset allocation that aligns with your risk appetite and goals. Specify the types of investments you’ll consider, such as stocks, bonds, or real estate, and establish the diversification strategy.

3. Documenting Your Current Portfolio

List your current investment holdings and their values. Analyze their performance and assess their alignment with your goals and strategy. This step provides a baseline for future evaluations.

4. Setting Target Asset Allocation

Establish the ideal distribution of assets within your portfolio, taking into account the risk-reward trade-off and your financial objectives. This target allocation serves as a benchmark for adjusting your portfolio over time.

5. Establishing Investment Selection Criteria

Define the criteria you’ll use to select individual investments. Consider factors like historical performance, financial health, and management team. These criteria ensure that your investments align with your strategic objectives.

6. Monitoring and Reviewing Performance

Establish parameters for monitoring the performance of your investments. Specify thresholds for review and potential adjustments. Regular monitoring allows you to stay on track and make informed decisions.

Benefits of an Investment Policy Statement

An IPS offers a multitude of benefits, including:

  • Clarity: Outlines clear investment objectives and strategies.
  • Roadmap: Provides a roadmap for managing your portfolio.
  • Consistency: Ensures consistent decision-making and accountability.
  • Risk Mitigation: Helps mitigate investment risks by aligning your portfolio with your risk tolerance.

Creating an investment policy statement plan is an essential step in managing your financial future. By following these steps, you can empower yourself with a roadmap that guides your investment decisions and helps you achieve your financial goals.

To ensure your investment strategy aligns with your financial objectives, consider reviewing the importance of having an IPS investment plan. Understanding the components of a sound investment policy is crucial for creating a tailored investment roadmap. To simplify the process, explore our comprehensive guide on building an investment plan template.

Determine Risk Tolerance and Time Horizon

Your risk tolerance is your ability to withstand losses in your investments. It’s influenced by your age, financial goals, and personality. Your time horizon is the amount of time you have to invest before you need the money.

To determine risk tolerance, ask yourself:

  • How much money can I afford to lose?
  • How would I react if my investments lost value?

To determine time horizon, ask yourself:

  • When will I need the money I’m investing?
  • How long can I afford to leave my money invested?

Your risk tolerance and time horizon will help you make informed decisions about your investments.

Key Takeaways:

  • Determine your risk tolerance by assessing your ability to withstand losses.
  • Consider your time horizon when making investment decisions.
  • Align your investment strategy with your risk tolerance and time horizon.
  • Regularly review your risk tolerance and time horizon to ensure they remain aligned with your financial goals.


  • Investment Policy Statement Template

Decide What to Invest In

An investment policy statement (IPS) is your guidebook for making smart investment decisions. It outlines your financial goals, risk tolerance, and investment strategy. Creating an IPS is essential for any investor who wants to achieve their financial objectives.

The first step in creating an IPS is to define your goals. What do you want to achieve with your investments? Are you saving for retirement, a down payment on a house, or a child’s education? Once you know your goals, you can start to assess your risk tolerance. How much risk are you willing to take with your investments? Are you comfortable with the potential for losses, or do you need to preserve your capital?

Your investment horizon is also an important consideration. How long do you plan to invest before you need the money? If you have a long investment horizon, you can afford to take more risk. However, if you need the money in the short term, you may need to invest more conservatively.

Once you have a good understanding of your goals, risk tolerance, and investment horizon, you can start to develop your investment strategy. This is where you decide what to invest in. There are many different investment options available, so it’s important to do your research and choose the ones that are right for you.

Key Takeaways:

  • An IPS is a roadmap for your investments.
  • It outlines your goals, risk tolerance, and investment strategy.
  • Creating an IPS is essential for making smart investment decisions.
  • Your IPS should be regularly reviewed and updated as your circumstances change.

Source: CFA Institute: Four Considerations for Strong Investment Policy Statements

creating an investment policy statement plan


Q1: How can I accurately assess my current financial situation?

Q2: What are the key steps involved in defining clear financial goals?

Q3: How do I determine my risk tolerance and investment horizon?

Q4: What factors should I consider when deciding what types of investments to include in my portfolio?

Q5: What are some tips for making informed investment decisions?