What is an Investment Policy Statement?

An Investment Policy Statement (IPS) is a written document that outlines the rules, strategies, and objectives guiding an investor’s portfolio. It serves as a roadmap for both the investor and the portfolio manager, ensuring clarity, consistency, and alignment with long-term financial goals.

It is a strategic guide that defines how investments should be managed. It outlines your financial goals, risk tolerance, time horizon, liquidity needs, asset allocation preferences, and any legal or tax considerations. It's typically used by wealth managers, financial advisors, family offices, and corporate finance teams to ensure accountability and discipline.

Purpose of an Investment Policy Statement

• Strategic clarity: Sets clear investment goals and a plan to achieve them.

• Risk management: Defines acceptable risk levels and constraints.

• Consistency: Helps avoid impulsive decisions driven by short-term market fluctuations.

• Accountability: Serves as a benchmark to evaluate the performance of advisors or funds.

Who Needs an Investment Policy Statement?

• Individual investors working with a financial advisor.

• High-net-worth individuals (HNIs) managing large portfolios.

• Family offices setting long-term generational wealth goals.

• Startup founders or CFOs managing excess cash or planning treasury allocations.

• Non-profits and endowments with fiduciary duties.

• Corporate finance teams allocating capital reserves.

Components of an Investment Policy Statement

Example of an Investment Policy Statement

Investor Name: Acme Inc.
Objective: Preserve capital while generating a 5% annual return
Time Horizon: 3–5 years
Risk Tolerance: Moderate
Asset Allocation:

• 60% Bonds (short-term, investment-grade)

• 30% Equities (domestic large-cap)

• 10% Cash & equivalents
  Liquidity Needs: At least 15% in liquid assets
  Constraints: No investment in fossil fuel companies
  Review Frequency: Quarterly

Investment Policy Statement Template

Here’s a simplified Investment Policy Statement template you can customize:

1. Investor Information

• Name/Entity:

• Contact Info:

• Prepared by:

• Date:

2. Investment Goals

• Target Annual Return:

• Time Horizon:

• Key Milestones or Payouts:

3. Risk Profile

• Risk Appetite: Low / Moderate / High

• Maximum Drawdown:

• Stress Scenarios:

4. Asset Allocation Strategy

• Cash:

• Fixed Income:

• Equities:

• Alternatives (Real Estate, Crypto, etc.):

5. Constraints

• Legal/Regulatory:

• Tax Considerations:

• Ethical/ESG Exclusions:

6. Monitoring & Reporting

• Frequency of Review:

• Reporting Party:

• Evaluation Metrics:

How to Use an Investment Policy Statement

1. Draft it early — Create it before you begin allocating capital.

2. Align with stakeholders — Especially in startups or family offices, get buy-in from all decision-makers.

3. Use it as a benchmark — Evaluate investments and advisors based on the IPS.

4. Review periodically — Update it annually or after major life/business changes.

Alternatives & Tools

If you’re managing multiple stakeholder portfolios or working with limited resources, tools like Plox can help you securely share IPS documents, track who views them, and maintain confidentiality.

Conclusion

An Investment Policy Statement is not just a formality, it’s a strategic necessity. Whether you're a founder with idle treasury funds or a seasoned investor managing long-term wealth, an IPS keeps decisions objective, data-driven, and structured.

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