What goes in an investment policy statement

You will be able to list the sections of a personal investment policy statement and what each one is for.

Farhan's laptop now has a folder with seven files in it: an allocation draft, an index map, a comparison sheet, share class notes, home and currency rules, a crash test and an account map. Each one took him an evening or more, and yet if markets fell 30% tomorrow, the file he would open is his broker's app.

That gap is what an investment policy statement closes. It is a single page that gathers every decision you have made in this course and states, in plain sentences, how you will run your portfolio. Professional investors such as pension funds write long ones. Yours needs to be short enough to read on a bad day.

The core: what you hold and why

The first part covers the decisions from modules 1 to 6. Each gets a line or two.

Goals and horizon come first: what the money is for and when you expect to use it. Farhan writes: "Long-term money for retirement, not needed for at least 20 years." Next is the target allocation, the one line from lesson 1.4, Draft your target allocation, with its bad year figure. Then the chosen funds: each index from your index map and the fund that tracks it, with share class and currency policy. Then the rebalancing rule, word for word from lesson 6.2. Then the contribution plan: how much you invest, how often, and where new money goes when you are off target.

None of this is new. You are copying decisions you have already made into one place, with the reason for each in a few words, so that you can see the whole plan at a glance.

Where the money sits and how you take it out

The second part comes from module 7. List which accounts hold what: shares in SRS and your cash account, bonds in your cash account, CPF left out or counted, whichever you decided.

Then add the order you will draw from your accounts when the time comes. For most readers that is far off, but writing it now prevents an expensive mistake later, such as taking money from SRS before your statutory retirement age when a cash account holding would have done. A simple version is enough: "Emergencies come from the emergency fund. Long-term withdrawals come first from whichever holding is above target in my cash account. SRS only from my statutory retirement age."

What you will not do

This is the section most people leave out, and the one that earns its place on a bad day. Write down the specific things you will not do, the moves that feel sensible in the moment and wreck a long-term plan.

Good entries are concrete. "I will not stop my monthly contributions after a fall." "I will not buy a fund because it was last year's best performer." "I will not add a new fund without first writing why it fits the allocation." "I will not move money to cash because of a news headline." Each one should match a temptation you have actually felt, or one this course has shown you. Lesson 8.2, Rules for when markets fall and when they boom, turns the most important of these into fuller rules.

Farhan's list includes one written for himself alone: "I will not stop investing during a fall." He did exactly that a few years ago, and he knows it.

One page, because you have to reread it

There is no prize for length. An investment policy statement you never reread is worth nothing, and a long one is one you will not reread. One page is enough for everything above if each section gets a line or two and the detail lives in your supporting sheets.

That is why the statement points to the other files rather than copying them. The comparison sheet, account map and crash test sit behind it as evidence. The statement itself is the summary you read before acting.

Think of who will read it. You will, on your review day, to see whether anything has really changed. You will again on the worst day of the next crash, when part of you wants permission to panic, and the page has to talk you out of it in a couple of minutes. A spouse or family member may read it too, if they ever need to understand your plan without you there to explain it, so write in sentences any of them could follow.

Before you write any of the content, set out the skeleton: the headings in the order above, so you can see the shape of the page. Under each, one line is enough for now. Lesson 8.4 is where it gets filled in properly.

Write the headings of your own investment policy statement with one line under each.

Course

• Build and run an ETF portfolio