Investment Policy

Investment policy favoring local investors over global ones is typically controlled in such pacts, and the idea of a separate investment policy rapidly becomes a fiction or fantasy, as real decisions reflect the real need for nations to compete for investment, even from their own local investors. 

An policy statement is a document composed between a portfolio manager and a client that describes general rules for the manager. This statement presents the general investment goals and aspirations of a client and describes the strategies that the manager should employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance, and liquidity requirements are included in an investment policy statement. 

In addition to specifying the investor’s goals, priorities and investment preferences, a well-conceived IPS establishes a systematic review process that enables the investor to stay focused on the long-term objectives, even as the market gyrates wildly in the short term. It should contain all current account information, current allocation, how much has been accumulated and how much is currently being invested in various accounts.

A well-conceived IPS includes a breakdown of asset allocation targets as well. For instance, it specifies the target allocation between stocks and bonds, further breaking down the target allocation into sub-asset classes, such as global securities by region. Developing a solid investment policy statement is not a typical exercise for most investors. It requires a lot of thought. It also requires an understanding of how the market works as well as familiarity with investment principles and practices.

Become Vskills Certified Commercial Banker. Learn the module “Investment Policy”. Try the free practice test!