By Craig Ayers, Senior Vice President and Senior Portfolio Manager for Whittier Trust
At Whittier Trust, we know that clear communication with our clients is a cornerstone of the relationship. A critical aspect of clear communication is the Investment Policy Statement (IPS). An IPS is a document your advisor should provide that outlines investment goals, objectives and strategies. It serves as a roadmap and helps ensure that investments are made in a manner consistent with your overall financial goals and risk tolerance. Here are five reasons why having an IPS is critical for successful investing:
Clarity and Focus
An IPS clarifies investment goals and objectives. It forces you and your advisors to think critically about your goals and the timeline to achieve them. This clarity maintains focus on long-term goals and avoids short-term distractions.
Consistency and Discipline
An IPS establishes a framework for investment decision-making consistent with your goals and risk tolerance. It helps avoid impulsive decisions based on short-term market fluctuations or emotional reactions to market events. With an IPS in place, your advisors stick to the investment strategy over the long term, which can lead to better investment outcomes.
An IPS helps investors manage investment risk by setting guidelines for asset allocation, diversification, and risk tolerance. Ensuring investments are appropriately diversified across asset classes, sectors and geographies helps to mitigate risk. By establishing risk management guidelines, your advisor has clear instructions.
Accountability and Monitoring
An IPS helps investors establish a clear benchmark against which investment performance can be measured. It also sets guidelines for monitoring investments and making adjustments to the investment strategy as needed. This accountability and monitoring keeps your advisor on track with your investment goals. Importantly, it can ensure that investments are selected within your comfort zone and risk tolerance.
Communication and Collaboration
An IPS is a communication tool between you and your advisors. It ensures that everyone is on the same page regarding investment goals, objectives and strategies. By collaborating on the development of the IPS, you and your advisors can work together to create an investment strategy that is tailored to your needs and goals.
In summary, an Investment Policy Statement is a critical tool for successful investing and reaching your goals. It provides clarity and focus, establishes consistency and discipline, helps manage investment risk, promotes accountability and monitoring, and facilitates communication and collaboration.