Investors are again wondering what they should do as stock markets decline around the world.
They wouldn’t be wondering if they had a well crafted Investor Policy Statement (IPS).
An IPS is developed by your investment manager/advisor with your input, participation and ultimate endorsement. It represents the guiding principles for the management of your portfolio.
If your advisor has not prepared one for you, ask them why.
When done properly, it prevents advisors and clients from making some of the most common investment mistakes:
- Investing in equities with a short-term time horizon
- Choosing illiquid investments when access to capital is needed
- Expecting less volatility than is likely
- Expecting higher returns than is likely
- Paying more tax than is necessary
- Buying high and selling low
How can an IPS do this?
It outlines the following parameters specific to a client:
- Risk Tolerance – including quantifying how much of a decline you can take and for how long.
- Time Horizon – when you will need access to part or all of the investment.
- Return Expectations – what your portfolio return is most likely to be, and if it differs from what you would expect.
- Asset Mix – an outline of what percentage of your portfolios will be in stocks, bonds, GICs, cash, annuities, etc.
- Rebalancing – when and how your portfolio would be adjusted as market conditions change.
During times of volatility, the IPS reminds clients (and advisors) what strategic adjustments are appropriate (and inappropriate) for you. It can act as a form of discipline, leading to rational vs. emotional investment decisions.
Let us know if you would like to see a sample Caring for Clients Investor Policy Statement.
An IPS cannot make your portfolio bulletproof, but it can ensure that you and your advisor are on the same page, in black and white.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.