Create an Investment Policy Statement

Ray’s Take: Financial professionals have long used an investment policy statement for their clients. It’s a guiding set of principles, of sorts, to help make decisions along the way. It’s an excellent tool for anyone to use to keep themselves on track when it comes to financial planning.

By putting things down in writing, you are making a clear statement of what your goals are and how you plan to reach those goals. Write down the key reasons why you’re investing and your expected time horizon for your goals. Like when you plan to retire. Include any big-ticket items that will affect your plan along the way, like buying a home or saving for college. Want to spend six months touring Europe once you retire? Be sure to include it, or any one-time big expenses that are part of your intended retirement.

Once you have your goals and major expectations mapped out, take a look at your investments and determine what funds will be available to cover these big-ticket items along the way and make investment decisions that will support them.

Include a Plan B, just in case life happens and you need Plan A to go. One day you will likely be tempted to make a major purchase or change. As you consider the options, pull out your IPS and reread it. If it isn’t consistent with the IPS, it’s time to slow down.

An IPS doesn’t need to be, nor should it be, complicated. The idea is to establish a set of guidelines so you’ll know if you’re on course or veering off the road.

Like any important part of life, an investment policy statement needs regular attention, maintenance and rebalancing. It should be flexible enough to accommodate changes in your life like caring for aging parents, children returning home and inheritance.

Once you get the map drawn, a financial planner can help refine it in the beginning and adjust it as time goes by.

Dana’s Take: While we’re on the topic of writing down plans, how about a life plan? It may seem a bit ridiculous to write down the things you want to do in your life. After all, it’s all right there in your head. And your heart. But like an investment strategy plan, having it in writing makes your life plan more concrete and real.

When you’re writing out your plan, use first person. Writing “I will,” followed by your goals makes them more concrete and gives them more power.

Dare to dream outside the box as you write your plan. Our world has changed since the market crash in 2008. At a time when so many established options no longer appear to exist, it’s a perfect time to envision and create and try something new.

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