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Wednesday, October 1st, 2014


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Begin with the Basics: Creating a Solid Investment Policy

Most builders understand that laying a strong foundation is the key to constructing a good home.  Do the job right and the structure will be stable. Do it wrong and it could collapse.

The same logic applies to investment portfolios. Investors are more likely to achieve their financial goals if they have a clearly defined investment strategy. And they’re more likely to create an effective strategy – one they can stick with over the long term.

Drafting an Investment Policy


The process of drafting an investment policy statement typically begins with the collection of all relevant data about the investor, such as basic financial data, broad investment objectives, target rates of return, expected future cash flows, investment time horizon and investment constraints.

Based on these and other factors working together, the investor and Financial Advisor can create a comprehensive asset allocation plan, one that determines how the assets covered by the policy statement are to be divided among the various asset classes. One of the benefits of this process is that it compels investors to reconcile potential conflicts among their different objectives before those conflicts negatively impact portfolio performance.

Investment Policy and Future Returns


Of course an effective investment strategy also must be based on reasonable estimates of future returns for the various asset classes included in the portfolio. In addition to the investment strategy and its expected performance the policy statement should describe the process to be followed in executing that strategy.

Investors also should establish procedures for reviewing and, if necessary, altering their strategy or their portfolio management team.

Investment Policy Statement


An investment policy statement can be a powerful tool for refining and focusing a portfolio strategy so that it best serves the investor’s specific needs. But a policy statement is only as good as the process that produces it. By developing a clear investment policy statement, and sticking to it, investors can at least be sure their portfolio rests on firm foundations.

Ben Proctor is a Certified Financial Planner and Vice President-Wealth Management with Smith Barney’s Greenspring Station office. He may be reached at 410-494-8097 or by visiting his web site at
www.fa.smithbarney.com/benproctor.

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3 Responses to Begin with the Basics: Creating a Solid Investment Policy

  1. IPS comment says:

    You can create a fully customized and highly professional Investment Policy Statement with a software called IPS AdvisorPro. It is an excellent system for creating the IPS document for all of your investors. Check it out at http://www.ipsadvisorpro.com

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  3. lhkelley says:

    I like this article. Thank you.

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