Your Investment Policy Statement

Welcome to 2014! We thought we would begin the year with a suggestion for a New Year’s Resolution. Establish your personal Investment Policy Statement, or IPS.

An IPS is a document that puts in writing a number of parameters that you and your investment professional will follow regarding how your investment account is managed. It gives you a direction on how to invest your hard-earned dollars and eliminates the temptation to rely on “hot tips” or follow the recommendation of friends and relatives.

Your Investment Policy Statement spells out the reasons why you are investing. It outlines what you are hoping to gain from your investing endeavours and when those gains should materialize. By reviewing your IPS regularly, you can confirm whether you are on track to meeting your goals or whether you may have to make some adjustments.

Your IPS acts like a rudder on a ship. It guides you through both the calm as well as the rough waters, and it keeps you headed in the right direction. It helps you ignore the day-to-day market turbulence and to avoid making emotional decisions that may otherwise turn out to be mistakes.

Your Investment Policy Statement need not be elaborate. A simple IPS will allow you and your planner to analyze your progress in an easily understandable format. There may also be a need for more than one IPS for investments with different objectives.

Your IPS will reflect your commitment in terms of the dollars you are prepared to put aside on a regular basis. This could be a monthly or weekly contribution, whatever suits you best.

Your Investment Policy Statement may spell out an asset allocation policy for your investment account. Rather than setting hard-and-fast rules, you may want to set ranges for different asset classes. It may look something like this: 5-10% cash, 20-30% fixed income, 60-75% equities. Of course each of these asset classes can be broken down into sub-categories, such as short- and long-term fixed income and Canadian, US and International equities.

Once you’ve established an asset allocation strategy, you and your planner can make an estimate of returns. Historical averages for your chosen asset allocation will help in choosing a projected rate of return. You must be prepared at all times for contingencies and be prepared to make adjustments.

One area to be cautious is regarding your personal risk profile. Most investors judge themselves as having a very high tolerance for risk when markets are going up, and as conservative investors when markets are going down. Ask yourself what you would do if you received a statement and your investments were down 10%, 20%, or maybe even 30% or more. Would you sell everything, do nothing, or invest more? The answer to this question gives great insight into your risk profile.

It is not easy to draft an IPS. The best course of action is to work with your trusted financial planner. Reaching out for advice may be one of the best decisions you can make when it comes to developing your personal IPS.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail Mutual Funds provided through FundEX Investments Inc.

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