The Investment Policy Statement

About This Episode

How an Investment Policy Statement helps you look into the “eyes of a tiger”

One of the most common criticisms we hear about the investment industry is that a lot of investors say things don’t feel transparent. To remedy that problem, investment policy statements are becoming more common in the private client world and we believe they’re a must-use as they create clarity, transparency, and empowerment.

Just as we use maps when we travel to give us a sense of where we’re going, we should have a map for how we invest today, tomorrow, and in the future. In the current context with Coronavirus and the economic impact it’s had, an investment policy statement is more critical than ever before. To help you on your journey as an empowered investor, today we’re going to explore what you need to know about the investment policy statement.

On this episode, Keith and Marcelo cover how having an investment policy statement empowers you as an investor, the goals of the statement, the main elements that must be included, how to look at risk management, common mistakes people make in their investment policy statements, why you need one even if you are a DIY investor, and so much more!

Thank you for listening!

Key Topics:

• What is an investment policy statement? (2:12)
• How having an investment policy statement empowers investors (3:33)
• Examples of similar documents in other industries (4:17)
• The evolution of transparency and documentation in the investment industry (5:50)
• The main goal of a written agreement, like an investment policy statement (7:17)
• Why you need to use an investment policy statement (8:39)
• A recent example where Marcelo suffered from not having an agreement in place (9:55)
• Why your goals are a critical part of the foundation of your investment policy statement (12:11)
• Differentiating between willingness and capacity to bear risk (13:14)
• The importance of the investor-advisor feedback loop (16:18)
• The mistake many people make when estimating their investing time horizon (16:56)
• Why cash flow considerations should be included in your investment policy statement (18:53)
• How having a recommended long-term asset allocation protects your investments (20:19)
• Why we include an investment philosophy in an investment policy statement (22:33)
• How a comprehensive investment policy statement is essentially a transparency statement (24:23)
• The lifeboat drill (25:53)
• What you should look for in the advisory firm compensation section of your investment policy statement (27:41)
• Risks of working with an advisory firm without an investment policy statement (29:17)
• How a DIY investor should approach an investment policy statement (30:35)
• And much more!