Creating Your Investment Policy Statement II

Part II – Practice

Although each Investment Policy Statement (IPS) is very personal, it bears certain features which are nicely summed up in the Morningstar’s Investment Policy Worksheet (pdf). This document is only two pages long but full of vital questions that each investor should address.

The worksheet’s leading section is called Executive Summary and serves as an overview of your current situation and what you expect from your portfolio. Oncce filled in, it is advisable to update it whenever you rebalance your portfolio.

The next two sections ask you to state your objectives and put in plain language your investment philosophy. The last two sections refer to your investment selection criteria and monitoring procedures.

The worksheet is an excellent start for constructing your IPS although it does not address critical issues like liquidity and reconciliation of your ability and willingness to take risk. See Part I for more clues on that. Another feature that also could be elaborated is the list of available asset classes briefed into the Executive Summary. The lack of commodities and no split of bonds into government and corporate strike at first glance but here the illustrative nature of the Worksheet seems much more important.