Investment Policy Statement

An investment policy outlines and prescribes a prudent and acceptable investment  philosophy and defines the investment management procedures and long-term goals for the Investor. The principal reason for developing a long-term investment policy and for putting it in writing is to enable you to protect your portfolio from adhoc revisions of sound long-term policy. The written investment policy will help you maintain a long-term policy when short-term market movements may be distressing and the policy is in doubt.

The development of an investment policy follows the basic approach underlying financial planning: assessing your financial condition, setting goals, developing a strategy to meet the goals, implementing the strategy, regularly reviewing the results and adjusting the strategy or the implementation as circumstances dictate. Having and making use of an investment policy encourages you to become more disciplined and more systematic, thus
improving the probability of satisfying your investment goals. The formal requirement for written investment policies originally arose out of regulations relating to company retirement plans (ERISA).

The net effort of the written policy is to increase the likelihood that the portfolio will be able to meet the financial needs of the Investor. Steps to establish an Investment Policy

  1. Assess your financial situation identify your goals and your needs
  2. Determine your tolerance for risk and your time horizon
  3. Set long term investment objectives
  4. Identify any restrictions on the portfolio and its assets
  5. Determine the asset classes and mix appropriate (the “Asset Allocation”) to maximize the likelihood of achieving the investment objectives at the lowest level of risk
  6. Determine the investment methodology to be used with regards to investment selection, buy-sell disciplines, portfolio reviews and reporting, etc.
  7. Implement the decisions

Step 1 – Define your Long Term Goals and Values

Investment policy begins with identifying the reasons for investing. From the vision of what you want to accomplish comes the policy.

Step 2 – Define your Life Cycle Phase

Experience tells us that many people find they go through these financial Life Cycles. It is important to recognize what phase you are in and where you are headed.

Step 3 – Define your Liquidity Constraints

Immediate or near-term cash requirements may create the need for more liquid assets despite the overall long-term objectives. Client has the following liquidity constraint(s):

Step 4 – Define your Time Horizons

The time horizon of investments is important in determining acceptable levels of risk. The time horizon is an expression of the amount of time before half of invested capital might be needed.

Step 5 – Define Risk Assumptions

Risk cannot be avoided. Putting your money in a mattress risk actual loss of the money. Depositing money in the bank risk a loss of purchasing power of the money to inflation. Risk must be identified and understood before it can be managed.

Step 6 – Define your Return Expectations

The highest return possible with the lowest tolerable risk best describes the objective of most investors.

Step 7 – Define your Investment Restrictions

Some investors prefer to avoid making investment in or loaning money to companies engaged in various businesses or dealing with some customers.

Step 8 – Define your Tax Policy

Taxes can affect the investment policy in several ways:untitled.6

untitled.6The determination of appropriate investment vehicles for a portfolio, either taxable, tax-free, tax deferred, tax advantaged or fully taxable. The effectiveness of after-tax returns of all asset classes must be considered as well as the possible taxation due to the imposition of the alternative minimum tax.