Why You Should Have A Written Investment Plan

This could be a financial recipe for long term investment success.

  • Have a written Investment Plan.
  • Understand it.
  • Make sure it is adequately diversified
  • Stick to it, in both up and down stock markets.
  • Rebalance and review as needed.
  • Repeat.

All our clients have a written investment plan, which they have signed and agreed upon.

A written investment plan does not need to be extremely long, but they serve many purposes. We call ours an Investment Policy Statement (IPS).

All investors should have a written investment plan because they provide clear direction, guidance and discipline for all of your investable assets, including assets in a 401(k) plan.

Having a written investment plan may help you be more confident and have a greater sense of peace of mind. Our clients can understand why we are structuring their portfolio as we do, as we have already discussed it with them. We do not make major moves because some analyst in NY thinks now is the time to get into energy stocks or invest more Europe. We have a plan. We have talked about it. And we adhere to it.

Rather than accumulate a bunch of overlapping mutual funds or a collection of individual stocks over the years, buying this hot one and that sector the next year, having a written plan allows you to have a comprehensive, well diversified portfolio for the long term that is aligned with your financial goals.

As a traveler going to a new city, you would use your phone’s mapping app or car’s GPS to guide your way from point A to point B. For an investment portfolio, an investment plan provides similar benefits.

The IPS that we develop provides an agreed upon asset allocation of how much to invest in stocks, fixed income and cash, based on each client’s specific personal needs.

The investment plan describes how the portfolio will be very diversified by asset classes, both within the US and globally. We set limits for each asset class, to minimize the risk of over exposure to certain sectors or asset classes. For example, through the investment plan and the underlying mutual funds we utilize, a client would not incur the unnecessary risk of too much exposure to a certain industry, market sector or geographic region.

A written investment plan provides discipline for buying and selling decisions. We “rebalance” a portfolio after a certain asset class performs very well, such as US small value in 2016. If that asset class exceeds it target allocation, we consider selling a portion. We would then evaluate the overall portfolio to reallocate those dollars into fixed income or a stock asset class which is below its target weighting. This discipline of rebalancing, which we have adhered to since we started our financial advisory firm, strives to buy low and sell high, without the guessing.

We revise Investment Policy Statements over time as events occur in your life or as you progress towards your financial goals. As you get older, you may become more conservative or accumulate adequate assets so that less stock exposure is prudent. These are valid reasons to change your overall investment policy.

We do not recommend changing one’s investment plan because of market conditions or predictions about the future of the stock market. All too often, this is emotionally driven and not in your best interest. These may be reasons to have discussions with us, but not necessarily to make major changes to your long term financial plan.

Some investment concepts are fads. Having a written Investment Policy is not a fad, it is an important, evolving document for your entire financial life.

Like a great recipe, if an Investment Policy Statement is prepared well and followed, it should provide a good outcome.


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