The purpose of an investment policy statement is to turn your investing strategy into a measurable plan.
Heres how to get started putting one together.
A medium-term goal may be covering your childs college education.
You may also have a long-term goal of retiring in 30 or 40 years.
attempt to estimate how much money you will need for each goal.
The short-term goals may be easier to tackle, because inflation will be less of an issue.
(This is normal.)
That may indicate you have a lower risk tolerance.
But if the latest news doesnt faze you, you may be comfortable with more risk.
Vanguard offers afree risk tolerance surveyto get you started.
This is also known as your target asset allocation.
You may get inspired by Morningstars research-backedasset allocationsfor your retirement portfolio.
Theres a good explainer on how to pick an asset allocation for collegehere.
For shorter or medium-term goals,this articlemay help.
Pick your investments
Next, set your criteria for picking investments.
For example, you may favor mutual funds over individual stocks.
You may also have preferences forpassive versus active investments.
You may set guidelines for your ideal expense ratioslike 0.20% for passive investments, for example.
Create a monitoring schedule
Decide how often you will review your portfolios.
You should monitor your investments at least once per year, but no more than once per month.
As the stock market changes, you may notice your asset allocation no longer matches your target percentages.
This may be anopportunity to rebalance, or shift back to your original percentages.
Youll want to consider rebalancing once your investments shift by more than 5-10% of your target.
The same rule applies to tax-free accounts like a Roth IRA.
