The One Document That Every Successful Investor Has

by RJ

in Investing

An  investment policy statement is  a single document that defines your investment goals and philosophy.

Although your situation might be fairly simple right now, as you age, life begins to get a little more complex. Your investment policy statement will act as your compass to your financial plan. It will guide you through the many variables life has in store for you.

Below I included a sample, investment policy statement.

Example of an Investment Policy Statement

This is a hypothetical investment policy statement for John and Sue Doe. A married couple age 25 w/ no kids. Both make $50,000 before tax.

Investment Philosophy

We both want a portfolio that maximize are chance for long-term returns. We understand that in order to maximize our returns, we need to invest  primarily in the stock market. Although because of our age of 25, we won’t be withdrawing upon these funds anytime soon. Therefore, we don’t need to worry about year to year returns and are more concerned with long-term returns.

Since we just started our careers, we have no idea if we wish to retire early or not. As of right now, we’re using a target date of 2050 for retirement.

How Much to Invest In

Our goal is to save 10% of our before tax income ($10,000) this year. Every year we plan to increase that number by 1%, until we have saved 20% of our income. If we choose to retire before 2050, we will reevaluate this number and we understand that it might need to be higher then 20%.

What to Invest In

We will start by investing in John’s 401K because his employer matches contributions ip t0 3%. Therefore, John will contribute up to the matching contribution. Luckily, John’s 401K has a low expense target date retirement fund that we will put 100% of investments in. Sue’s 401K doesn’t match and contains bad investment options. Instead of contributing to a 401K with bad investments options and high fees, we will open a  Roth IRA and dollar cost average $166.66 into each account.

Since we can’t meet Vanguard’s minimums, we choose to invest in T. Rowe Price. We will invest in their Target Date 2050 Fund.

Rebalancing Strategy

Since all of our investments are in Target Date Funds, there is no need for us to rebalance.

Once a month we will track out net worth, to make sure we are always trending upwards.

Monitoring and Control Procedures

We will review and revise this statement this statement together, once every six months. We will also review and revise if we experience a large change to our present situation. Examples include a job change, inheritance, income increase and reduction, a move, having kids, etc…


___________________                         ____________________


An investment policy statement is a great way to make sure you’re on target. Life is going to throw at you curve balls, knucklers, and change ups. The best thing to do is work with what you have got.

In the comments, let me know if you have an investment policy statement and what you put on your statement.

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{ 1 comment }

Optioneer TradingNo Gravatar July 1, 2010 at 4:22 pm

How rare is it for an employer to match your 401k?

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