I’ve written about creating your own investment policy manual in the past, but I’ve been talking about it for some time. I would like to talk specifically about how to draft an investment policy statement for your family. Penning this document is probably one of the most important things to do when embarking on a journey to financial independence, as it can be considered in the long run, even in the most devastating economic turmoil.

Really, it may sound sparse, but an investment policy statement is not a creative exercise that you can be ashamed of. It’s a serious business. Case-in-point: If you have significant wealth, it is advisable to establish a individually managed account rather than investing through a mutual fund or index fund. One of the first things you do is to sit down with a representative of the company that oversees your assets and share an investment policy statement that they use to guide the decision-making process internally when they are buying. Is to speak while filling out or sell your investment for you.

Take out the paper, grab the pen and get ready to write down some notes. Think about these things the next day or week, and review them quarterly, semi-annually, annually, or twice a year, apart from the time it takes to actually complete your final investment policy statement. Please give me.

By making decisions when the world is calm and in order, you won’t be tempted to get lost when blood is flowing on the streets, and television reporters breathe into the Dow Jones Industrial Average and the collapse of the S & P 500. Screams enough to swallow.

STEP 1: Define the purpose


Why invest first? Wealth needs to be allocated to work. Sit down and start honest with yourself about your goals. For example, you can say: <I need a portfolio that generates $ 5,000 per month dividends, interest and rent by the age of 62, so combine that with my social security income. I can. Please lead a comfortable life.

  • I want to leave at least $ 100,000 as inheritance for each of my children and grandchildren. The trust fund can be evenly divided and distributed as a group over a three-year period, either at some location or at once.
  • I want to sleep well at night, even if it means raising my money a little later than I do. Emotional trade-offs deserve it.
  • For the first two items, you can use a financial calculator to match the amount of your deposit with the compound interest rate required to earn your existing assets. please do not worry. It’s not as difficult as it sounds. In fact, if you read your work about the two time values   of the money formula, you have already done at least two calculations without realizing it.

STEP 2: Set asset allocation limits

Next, you need to set the asset allocation, taking into account what the rate of return is good for each different asset class. Goals above your specified time frame.

For example, you might say:

Without exception, I maintain at least 10% of my personal net worth in cash and cash equivalents, so if the world collapses, I will buy groceries, gas, and medicine. This money does not need to get a return. Sure, the pace of inflation is ideal, but it’s not a major concern. It’s a spare. My anchor to the windward. (For more information, read “How much cash do I have to put in my portfolio?”)

I always pay dividends on at least 20% to 40% of my portfolio, even if high quality stocks collapse by more than 50%. These are the domestic and foreign commercial giants that form the core of the world economy. They may seem boring, but they may not seem to grow as fast as the next big stock, but rest assured that they should always be worth 10 to 20 years from now. Can work intermediate volatile

I own at least 20% of my portfolio in my hometown’s directly owned cash-generating real estate. If I move from home and need to downscale, it will be a backup residence. Rental income helps to finance my other investments and has a low correlation with price-earnings ratio, which makes it more secure than any other.

You will have to understand the details, but finding one that fits your lifestyle will help you avoid finding yourself in poor situations.

STEP 3: Establish a mechanism to execute the portfolio


When talking about investment philosophies for adding new securities and funds to your portfolio (for example, previously conservative buy-and-holding blue chips, “I have been paying dividends for at least 15 consecutive years, Passed several tests on the basic investment of aging Benjamin Graham).

  • How regularly do you rebalance your holdings, or whether you balance.
  • The measurement period used to determine if your strategy is progressing. (Note: Those less than 5 years are completely ridiculous if you forgive me. Academic evidence for this is clear. If you increment your portfolio monthly, or once a year, once every 60 months, you’ll probably You’ll do something ridiculous.)
  • The final idea in writing your IPS
  • Write down, sign and date your investment policy so that you are responsible. Follow the guidelines if you do not want a single stock or bond to exceed 5% of your portfolio. If you hold a certain amount of duty-free municipal bonds as emergency funds, do so. Think of it as a portfolio equivalent to a pre-marriage contract, it’s just between you and your money. For all wines and roses, it is easier to make gentle decisions in advance.

Leave a Comment