A Written Plan Can Help Your Portfolio

It's been said and likely proven out somewhere that if you write your goals down on paper you stand a much greater chance of achieving those goals.  One of the first items we address with people at DWCM are what our your investment and lifestyle goals?  Often people have a very hard time defining those goals let along trying to quantify them.

At DWCM we move and encourage people to create SMART goals; think in terms of Specific, Measurable, Achievable, Realistic, and Time Based.  A person can have a goal of retirement.  However a SMART goal is retiring at age 60 with $1M in investable assets with a monthly income stream of $5K per month.

Like Goals an Investment Policy Statement is a key driver in the increased success rate of achieving your goals.  An IPS is a guide post to be used in good times and bad.  More importantly having this road map with how to reach your goals helps you whether the most turbulent times in the markets.

This WSJ article here lays out the basic principles behind an IPS.

• Professionals who advise pension plans, foundations and other institutional accounts are generally required by law to write up investment-policy statements with their clients. These documents describe how the money is to be managed, and detail things like asset allocation, time horizon, and any restrictions on holdings, based on moral or ideological convictions.
• Writing an investment-policy statement lets the adviser explain right away that if lower volatility is a must, the client may have to agree to accept lower returns than if he or she invested in equities. "The client signs off on it, and you review it together once a year at least," 

• When markets get choppy, reviewing the policy statement can remind investors that trying to time markets is a sucker's game, and that over time—periodic rebalancing aside—investors are better off leaving their portfolios alone. In the 20 years through 2011, the Standard & Poor's 500-stock index returned a yearly average of 7.8%, but the average investor gleaned a yearly average of just 3.5%, according to Boston-based investment-research firm Dalbar Inc. Bond investors did even worse against the Barclays Capital Aggregate Bond Index, Dalbar says.
• "An investment-policy statement forces the client to lay out a game plan, maybe for a comfortable retirement," says Mr. Lyons. "In reviewing it, you're asking if it's worth putting that plan in danger because of what's in the headlines."
• Morningstar Inc. MORN -1.76% has a two-page template for an investment-policy statement on its website, including questions on investment objectives and philosophy, investment selection criteria and monitoring procedures. On Morningstar.com, search for an article titled "Making Your Investment Policy Statement," which has a link to the template and offers guidance on completing it.

As always we are here at DWCM to assist you in any way.