You need an Investment Policy Statement. Do you have one? If you said no, you’re not alone. Neither did I, until now.

The White Coat Investor has been harping on this for nearly a decade. I admired his elegant IPS posted on the Bogleheads forum but couldn’t make myself sit down to write it all out. And that’s for a person who actually likes dabbling in personal finance!

The Physician on FIRE has been generous enough to share his own evolving IPS.

Yet, the numbers remain far from ideal. As per the post from the White Coat Investor, more than 50% of his readers still do not have an IPS.

Why you need an Investment Policy Statement

Is there a reason to go on and on about this? Yes. The most frequent question I see posted on social media (after the endless refi ones, in today’s climate) goes something like this:

“I just graduated residency and I’m finally getting a big girl paycheck. What do I do with the extra money??” OR

“We came into a small inheritance from an uncle passing away. What do we do with it?” OR

“I am getting burnt out from work. How long do I have to keep working this hard? Will I ever get to retire??”

You can answer all these questions on your own if you have an Investment Policy Statement. You do not have to rely on strangers on the internet to tell you what to do. No one knows better than you what your situation exactly is. Or what you dream of and aspire to.

Your Investment Policy Statement will tell you what to do.

Investment Policy Statement: A Template

I am not here to write another blog post extolling the virtues of an Investment Policy Statement. I am only hoping to make it easier to make one. Hence I came up with the template.

It takes away all the eassay-writing and makes it a quick fill-in process. It will take you more time to do the thinking behind your choices than it will to build your own IPS.

Download the IPS

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I made the form fillable to make it even easier. I hope it works for you. If you want to add or subtract from a section, copy and paste or delete that particular section.

Values

These are deeply personal and embody the reasons you do what you do. In this case, with your money. They are your North Star- you aspire to them daily.

Don’t get stuck here. Sometimes questions like this give me a mental block. If nothing comes to you, keep it at the back of your mind and come back to it later.

Some of mine, for my IPS, are:

• We want to use our wealth to enrich our lives, to further education, and create memories and experiences for our family.
• We want our wealth to create more quality time for ourselves.
• We want to use our wealth to further our charitable giving.
• We want to be good custodians of our wealth so our legacy can touch the most number of people.

Principles

These embody your philosophy, when it comes to your money.

I have a few preset sentences in there to get you going, like…

• Money is ….. a force for good.
• A down market ….. a firesale!
• Debt is ….. a tool, in moderation.

If you know yourself well, just have fun with this. If you’ve never given these things a thought, now is a good time to begin.

Strategy

These are the techniques that will get you to your goals.

For example, some of mine are:

• We will save at least 30% of our annual household income towards our long-term and short-term goals.
• We will invest all excess funds to maximize our returns on our money
• We will keep our investment costs low.
• We will primarily use broad-based Index Funds to achieve our goals
• We will rebalance annually to maintain our target asset allocation, within the 5/25 Rule.
• We will attempt to lawfully decrease tax liability with all our investments.
• We will make changes to this document (a) only after a discussion with our significant other, (b) after 6 months of consideration and (c) a documented reason.

Insurance

Document all your insurance needs here. Term life insurance, Disability insurance, home and auto insurance and all others.

Goals

Goals are specific tasks on the checklist.

A wise coach once told me, “when your goals align with your values, they bring you joy”. Amen.

I divide goals into short-term and long-term. Short-term is in the range of 3-5 years, or less. Long-term is anything more than that.

A. Short-Term Goals

For each goal, I have used the following format:

• Name: 
• Amount Needed: 
• Date Needed By: 
• Type Of Asset/Account:
• Expected Return: 
• Required Monthly/Annual Savings Rate:

Do one of these for every one of your short-term goals.

An Emergency Fund should be a short-term first and foremost. How many months of expenses should be in there? What dollar value is that? Where will you keep keep this stash? Once written out by your own hand, you will be less tempted to move it into the market when interest rates scrape the floor. Or when the market is soaring and that money feels like it’s not pulling it’s weight.

Some common short-term goals are repayment of high-interest debt, maybe even student loan debt, accumulating downpayment for a house.

For most short-term goals, capital preservation is of prime importance. So, you would put it in a savings account or money market fund or CD or an individual bond.

For debt paydown, your return is the interest saved.

B. Long-term Goals

These are the biggies. The ones that need discipline to stay on track. But also reap the richest rewards.

Retirement is #1 on this list. Some others are mortgage pay down and college savings. Some will put student loan here.

I use a similar but more detailed format for those long-term goals. It starts off with how much is needed for the goal and in what time frame.

Then it outlines what accounts you have for the purpose. This may change with time as you progress from training to a job. And maybe to private practice. and have access to new accounts.

Then, a big one: the asset allocation.

As is probably evident, all of this is way more complex for retirement than for any other goal.

Monitoring

Put it right there, in writing, how frequently you will monitor your progress. That makes it automatic. I monitor annually.

What are some things to monitor?

How much you make and how much you’re worth.

How much you pay Uncle Sam and hence what you get to keep.

How much are you putting away for a rainy day or your golden years.

And that’s all there is to it. This can really be the weekend project you always wished it would be.

What are your thoughts? Is there anything we should add or take away from this list? Please let me know!