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What is an Investor Policy Statement (IPS) and Why You Need One

An investor policy statement is your map to your financial future. Like any map, it’s very important to have if you want to get where you are going! Most people are unsure where their future is headed. A strong financial base is a great launch pad for a fantastic future.

The great thing about an IPS is it tells you what you should do in many possible future financial situations. In the current Coronavirus outbreak, many people are panic selling stocks, losing their jobs, etc. It is very unfortunate when someone loses their job, especially quickly and with little foresight. An IPS will help evaluate your financial future ahead of that possibility by asking how likely a job loss is and what steps you will take ahead of time to mitigate that. If it’s possible you will see a job loss in the future, which it is for many people, you will include an emergency fund as part of your IPS.

Another thing you can plan is what your response will be if your stocks/net worth falls by 20%, 30% or even 50%. Will you freak out and sell while you are down? If that is the case, you have the wrong asset allocation and are overexposed to stocks. You could start with more bonds or cash on hand to make yourself more comfortable. Alternatively, you can write in your IPS that you are comfortable with your 401k falling in half because you have 30 years until you retire but your brokerage account you want to keep in bonds due to the fact that you might need that money in 1-5 years. Each pile of money you have should have its own plan as far as how big it should be, how it should be invested and why you are putting money there. That is what the IPS tells you.

For more on how to make your own IPS you can read here.

If you want help with an IPS and executing to your IPS you can Contact me via email or phone 715-820-0377

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