Investment policy statement

A written document setting out an investor's objectives, constraints, time horizon, risk tolerance and target allocation.

Its function is to be written when calm and consulted when not. Every rule in it exists to constrain a decision that would otherwise be made under stress.

For an individual it need not be long. A page covering what the money is for, when it is needed, what allocation follows, and what would trigger a change is enough.

The value is entirely in having written it down beforehand.

Written calm, consulted in a fall.

For an individual investor the sections that earn their space are short. What the money is for and when it is needed, which sets the horizon. How much of a fall can be tolerated without selling, which sets the equity share honestly rather than aspirationally. The target allocation and the rebalancing rule. And a list of what would justify changing any of it, which should contain life events and not market levels. A page written once and revisited annually outperforms most tactical decision-making, because it removes the decisions that are reliably made worst.