30 Day Investing Challenge, Day 29: Craft Your Investment Policy Statement
I’m sure you’re thinking, okay Meghan, wth is an “investment policy statement,” it sounds complicated. Yeah it does — want to know why? Because normally these are agreements written up between financial advisors and their clients to determine the parameters around a client’s portfolio. YAWN. But what I want you to do is craft your own for when the market is doing it’s thing and being a wild beast.
Why (And When) You Need An IPS
An investment policy statement or IPS outlines your investment and savings goals, choices, and whys. If the market is freaking out, you read your IPS and remember why you’re on the path you chose. It’s a way of calming yourself in a time of panic or euphoria, depending on if the market is crashing or soaring. You create it while your mind is at ease so you can refer back to it when you’re feeling anything but calm. It’ll keep you from making mistakes and selling in a down market or putting way too much of your portfolio into the next hot stock or commodity (cough Dogecoin cough). And they’re actually pretty easy to create and shouldn’t be long-winded. You want something that fits on one page so you can read it quickly when the latest financial headline hits.
Action Step: Write Your Own IPS
Many of this information you’ll already have from the last 29 days — the key is to put it all in one clear, concise document you can refer back to repeatedly. Here’s how:
Collect all your goals and document them in one place.
Outline your strategy for each goal in one or two sentences. An example for a long term retirement goal could be “Invest in low cost index funds, keep an 80/20 stock/bond split until I reach [this age/year], increase my savings rate every year, and don’t sell my investments until I retire.”
Document your risk tolerance for each goal in terms of “conservative,” “moderate,” and “aggressive.” Short term goals are usually conservative, while longer term ones are aggressive. This will help point you towards what assets you should be saving and investing in continually for each of your goals and make sure you don’t deviate based on fear or a whim.
Write down your current accounts and investments for every goal and why you chose them. This will help you remember your path when you refer back to the IPS.
If you have asset allocations, document them with each goal as well — if you want to update them periodically, set a range. So for example, if you’re 22 years old today and have an 88/11 stock/bond split in your retirement accounts, but know you’ll want to be more conservative as you get older, set a range for your stock and bond percentages.
Outline what you look for in an investment like low fees, well diversified, good past performance, and an older origination date. Use what you’ve learned the last 29 days to set your own standards.
Specify how often you’ll check-in with your goals and investments (this is what you did yesterday).
Re-write your IPS every 1-3 years depending on your needs and goal timelines. If you have a lot of short or medium term goals you’ll probably want a rewrite more often, whereas long term goals will be fine staying put a few years.
Action Step: Bookmark JL Collins’s Meditation Video
If all else fails and you’re still in a panic if the stock market is crashing, JL Collins’s meditation for when the stock market is dropping will help immensely. His smooth, calming voice and sounds of music and nature will help ease your mind (and may even make you chuckle).
Bookmark his YouTube video: A Guided Meditation for When the Stock Market is Dropping.
I’ll see you back here for your final challenge day.
Want to dive in deeper? My investing workbook “Your Journey to Freedom” will show you how to build the life of your dreams and teach you the fundamentals of the investing world.
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