User talk:LadyGeek/Investment policy statement

Reason for creating User page
Depending on the level of the intended audience for this article, I would suggest that might provide a very good framework for the article. Another thought, many lead-in sections draw from corresponding Investopedia definitions, so might be another good resource to drive re-development of the article. --Peculiar Investor 08:15, 7 March 2018 (CST)


 * Extracted from the first document (GetSmarterAboutMoney.ca): "An IPS outlines the rules you want your advisor to follow for your portfolio. [...] An IPS is a helpful tool for your advisor to have in addition to the "know your client (KYC) form"."
 * It seems pretty clear than an IPS is a tool for financial advisors. This would be consistent with the fact that most IPS models contain undecidable questions (e.g. questions which have no foreseeable right answers). In other words, it's a marketing tool, emphasizing that investing is difficult and the client needs the help of the advisor (justifying his fees). --Longinvest 08:33, 7 March 2018 (CST)
 * I disagree. FWF'ers have generally by choice decided to be their own financial advisor, but that doesn't change the model. An IPS exists to formalize and document the policy decisions on how your investment portfolio will be operated. It shouldn't try and predict the future or provide "right answers" because these are unknowable. But it should consider what could happen and what actions or non-actions you take. Perhaps because I'm an engineer, I see it as a high level algorithm on how to run the portfolio. --Peculiar Investor 09:00, 7 March 2018 (CST)
 * I would suggest the target audience for this article is newer, inexperienced investors who are looking for guidance on how to structure and operate their investment portfolio. Simplicity should be our goal. If needed/required, then later in the article the more advanced topics/nuances should be addressed. My $0.02. --Peculiar Investor 09:02, 7 March 2018 (CST)
 * I was simply interpreting the linked document. I've proposed a new definition, for IPS, which agrees with you engineer's view. But, the fact is that the concept of IPS has been created before I proposed a definition for it. When I read, in existing popular templates, about "expected returns" and lots of other undecidable things, I'm left to wonder about how such things are useful to a new, inexperienced investor. --Longinvest 09:30, 7 March 2018 (CST)

I am in agreement with longinvest. I created an example IPS using the blueprint tool (Peculiar_Investor's link) and was very surprised to see terminology only an "investing enthusiast" would understand.

Investopedia is a good starting point. However, the content is not authoritative and I have found it to be inconsistent and sometimes misleading. For this reason, I first look to authoritative sources such as the Ontario Securities Commission (OSC) which is the website cited by Peculiar_Investor.

Here's a different link which I think is more appropriate for a "DIY" (Do It Yourself) investor: Create your investment plan, from GetSmarterAboutMoney.ca. Although the title is called an "investment plan", an investment policy statement is part of this plan.

Your investment policy statement should:


 * specify your investment goals and objectives,
 * describe the strategies that will help you meet your objectives,
 * describe your return expectations and time horizon,
 * include detailed information about how much risk you’re willing to take,
 * include guidelines on the types of investments that make up your portfolio, and how accessible your money needs to be, and
 * specify how your portfolio will be monitored, and when or why it should be rebalanced.


 * I fail to see how a new investor can determine his "return expectations". Actually, I fail to see the relevance of the implied probabilistic approach to investing for an individual investor.--Longinvest 10:00, 8 March 2018 (CST)

A broader overview is here: Investing basics, from GetSmarterAboutMoney.ca

(Administrative note: The editor's signature is in the editor toolbar, 3rd icon from the left. It will insert --~ which is translated to the editor's username and time stamp upon "Show preview" or "Save page".) --LadyGeek 09:39, 7 March 2018 (CST)
 * Ah! Thanks.--Longinvest 09:45, 7 March 2018 (CST)

Given that an IPS already has a well-defined meaning in the investment counsel industry, I think that it would be a mistake to define a new meaning for it in the context of an individual do-it-yourself (DIY) investor. It would be more appropriate to let the IPS finiki page describe what an IPS stands for in the industry. I would use a different name, such as LadyGeek's Investment Plan suggestion, to describe the DIY investor document in its own finiki page.--Longinvest 10:01, 8 March 2018 (CST)


 * See my discussion below --LadyGeek 21:00, 8 March 2018 (CST)

As investment outcomes and future prices of goods and services are generally unknown in advance, I am a proponent of a reverse approach. I think that, instead of starting from precise financial objectives to build a plan, an investor should start from his current financial situation and anticipated future work earnings (let's call this his financial ability) to determine a desired balance between current spending and future spending. The investor should then regularly reassess the situation based on his current financial ability at the time of reassessment. .--Longinvest 07:08, 12 March 2018 (CDT)

the GetSmarterAboutMoney.ca IPS blueprint
I almost always like the GetSmarterAboutMoney.ca pages, I've linked a ton of them in finiki. But here in their IPS blueprint the very first question is about "Investment knowledge and experience level". The last answer from the pick list is "comprehensive understanding of principles; extensive experience; follow financial markets daily". Why would these things all go together? I like to think that I have a comprehensive understanding of principles, and enough experience, but I don't follow markets daily, in fact I actively try to ignore them, since my investing style (100% passive) does not require following market action and I think it's better psychologically not to know about the constant ups and downs. On FWF we're recommending most new investors to follow the passive approach. So this is a very bad start to this IPS blueprint.

Then in section 6) investment style, there are all these questions about do you like value investing, or growth investing, or bottom up security selection... There are brief explanations available when you hover on the orange question mark, but frankly, for an inexperienced investor, it would take hours of reading just to form a preliminary opinion on each of these styles. And we haven't even chosen the asset allocation yet...

Section 8) asset allocation, they ask "What markets would you consider investing in?", but all the choices are equities. Then there are no questions about fixed income. Oops...

In summary, they blew it, and I don't think we should even mention this link. --Quebec 07:21, 8 March 2018 (CST)

I agree, and have used the link I mentioned in the previous section. See below. --LadyGeek 21:00, 8 March 2018 (CST)

Who needs an IPS (temporary background section)
I've tried to summarize some of the discussion above about "who needs an IPS" in a temporary "background" section of the article. This content can be moved to a lower position, or integrated into a future lead section.--Quebec 08:29, 8 March 2018 (CST)

Risk tolerance
I think finiki is missing an important point related to asset allocation, which defines risk and therefore expected returns. It is missing the emotional component of your ability, willingness, and need to take risk. The Bogleheads wiki has implemented a page on Risk tolerance to help new investors set their asset allocations.

I have proposed a modified investment plan based on "Create your investment plan" which I think is appropriate for DIY investors. The citation footnote details are for reference while we work on the page.

The "missing" return expectations step is then filled with an understanding of risk tolerance. This page can be very easily copied here and modified if needed. --LadyGeek 21:00, 8 March 2018 (CST)


 * There is no such thing as a need to take avoidable risk, in life, only a choice to take it. It follows that the "need, ability, and willingness" framework, promoted by author Larry Swedroe, doesn't stand the test of basic logic. I suggest adopting the definition of risk of professor and author Zvi Bodie, dividing risk considerations into an objective risk capacity, and a subjective risk preference .--Longinvest 07:08, 12 March 2018 (CDT)


 * Perhaps risk tolerance should be discussed as part as the asset allocation article, instead of here. I like Bodie's approach, but it can be explained alongside the Swedroe stuff, rather than replace it.--Quebec 16:49, 13 March 2018 (CDT)

IPS versus investing plan
The current IPS article (including the user page version) distinguishes the concept of a simple "investing plan", perhaps for simple or short term goals, versus a full IPS. Do we want to keep this distinction? I ask because the section "Proposed investing plan" has been modified partly based on an OSC document that includes a step "4. Develop an investment policy statement" (source). I also note that in this source, examples are mostly retirement goals, unlike our "investing plan" that is recommended for short term simple goals. So is there an attempt to merge the notions of "IPS" and "investing plan"? I'm confused... My preference would be to keep the distinction, but simplify both, i.e. use fewer words when we describe what these documents should contain.--Quebec 17:09, 13 March 2018 (CDT)


 * The terminology may have been copied from the Bogleheads wiki Investment policy statement, where an investing plan is "simple" compared to a comprehensive "statement".


 * A plan implies a process you intend to do and can be changed at a later time. A statement implies a process that is formally documented and must be followed. --LadyGeek 19:45, 13 March 2018 (CDT)
 * Personally I never felt the Investment plan section should have been part of the article. Looking back through the original article history you can see the . It previously was in the See also section. I'd hazard a guess that indeed it was influenced by the Bogleheads wiki and was an attempt to make it easier for the reader to adopt at least a plan at minimum if they were not going to write an IPS. I think the previous use of See also was more inline with wiki standards. --Peculiar Investor 07:18, 14 March 2018 (CDT)
 * So you're saying two separate articles, IPS and investing plan? I'll second that.--Quebec 17:39, 14 March 2018 (CDT)
 * Careful what you wish for. Being bold I created Investing plan, but in the process found another similar article Investment planning. I think their purposes/content are different enough that we might want to keep/improve both. They both touch on other areas/articles so there may be other duplicate/similar content. --Peculiar Investor 22:27, 14 March 2018 (CDT)
 * Since the short term investing plan topic now has its own page (Investing plan for short term goals), I've cleared it from this user page. We can now focus on the IPS itself.--Quebec 11:45, 16 March 2018 (CDT)
 * See my comments in Talk:Investing plan for short term goals for my reason to restore the investing plan section. --LadyGeek 19:04, 16 March 2018 (CDT)
 * There is already a sentence in the lead section that takes care of that: "Investors with short term simple goals might only need a brief investing plan, but those with complex and/or long term goals should consider writing a full IPS". So I don't think we need an "investing plan" section on top of that, as it just repeats the sentence in the lead section.--Quebec 07:51, 17 March 2018 (CDT)
 * I missed the lead section sentence. Reading this again, I think the importance of an investing plan is understated. I have replaced the introductory sentence with a new section title (and old text) that emphasizes its intended purpose. --LadyGeek 09:19, 17 March 2018 (CDT)

I agree with Quebec here. Wiki articles should be focused on a specific subject, in this case an Investment Policy Statement. They use article links and See also sections to link the reader to other related subjects, such as an Investment Plan. Let's keep this article focused on it's subject matter which is an Investment Policy Statement. --Peculiar Investor 10:51, 17 March 2018 (CDT)
 * I have restored the lead section sentence as a new paragraph (it is a separate topic from the IPS) and placed the description in a citation note. Together, I think the point is clear and understood. --LadyGeek 11:29, 17 March 2018 (CDT)

Reasons, benefits, drawbacks
There is quite a bit of repetition in the sections on Reasons, Benefits, and Drawbacks (especially after reading the lead section and the Industry versus DIY section). Some compaction seems needed. --Quebec 17:06, 16 March 2018 (CDT)
 * I've had a go (now all combined into "Motivation"). The text can still be improved.--Quebec 08:50, 17 March 2018 (CDT)
 * I have attempted an improvement. --LadyGeek 21:45, 20 March 2018 (CDT)

Elements of an IPS
The core of the article, and possibly the most contentious, is the section "Elements of an IPS", which we haven't touched yet. I propose we distinguish two lists of what the IPS should and can contain: (1) essential elements we all agree on, such as goals, asset allocation, rebalancing policy; (2) optional elements that might depend on your investment philosophy, or investing style, or how much detail you want to put in your IPS, etc. That way, wiki readers who really want to keep their IPS short can stick to the 1st list, and for the wiki writers, reaching consensus could be easier. Would that be a good way forward? --Quebec 12:21, 17 March 2018 (CDT)
 * Two lists will add complexity. I think a single complete list, then state "optional" for those elements which are not necessary (or desired).
 * Morningstar has newer articles than the articles cited on the current page.
 * Note the differences to the current citation
 * I added this link to Investing plan for short term goals.
 * --LadyGeek 13:29, 17 March 2018 (CDT)
 * About the Morningstar templates (old or new): I don't like the idea of filling a rigid form. The Libra example feels much more natural and customized to the client. It's on the long side, but could be shortened by skipping the bond selection criteria, etc. --Quebec 09:09, 18 March 2018 (CDT)
 * I've nevertheless integrated the new Morningstar links into the user page (more references and examples is a good thing), but removed the word 'excellent'.--Quebec 14:55, 18 March 2018 (CDT)
 * I have incorporated the new Morningstar links into the live page with your wording. I did not copy the last sentence, as we are still working on the External links content. --LadyGeek 15:32, 18 March 2018 (CDT)
 * Isn't the intend to work on this user page until we're happy with it, then replace the existing main space article with it?--Quebec 17:08, 18 March 2018 (CDT)
 * I've separated the "Elements of an IPS" into subtitles, so that the list looks less like a big block of text. What should be "optional"? --Quebec 17:09, 18 March 2018 (CDT)
 * I've separated the "Elements of an IPS" into subtitles, so that the list looks less like a big block of text. What should be "optional"? --Quebec 17:09, 18 March 2018 (CDT)

I regarded the new Morningstar links as a maintenance task to provide the latest information - independent from this draft page work. I have made no other changes to the current page. The separation into subtitles reveals some duplication. I have created a proposed list to combine similar elements. --LadyGeek 19:21, 18 March 2018 (CDT)
 * Selecting a level of risk (your risk tolerance) determines the amount of diversification and therefore your asset allocation.
 * Implementation of systematic withdrawal plan is a subset of your monthly contribution / withdrawal strategy.
 * I think expected annualized return is optional, as there is a strong emotional component to investing. Formalizing a criterion to change your investments based on return can result in market-timing and may do more harm than good.
 * I've re-ordered the elements a bit. Asset allocation is part of the investment strategy, and we want to read about acceptable asset classes before, not after, we see the AA. Also, I don't view the AA as a direct consequence of someone's risk tolerance. Maybe I can tolerate the volatility of 100% stocks, but I can still choose 50% stocks. Finally, I've flagged the "Asset classes to be used" line as optional, because the AA already states which asset classes will be used. If somebody want to justify the choice, then a separate section of the choice can be added.--Quebec 14:59, 19 March 2018 (CDT)
 * I have placed asset allocation first, with the asset classes as a second-level hierarchy. The main article Asset allocation introduces the concept of an asset class in the second sentence, so the reader has a basic knowledge without needing to read further. It is then clear to see that selection of asset classes is optional, but only after asset allocation has been completed. --LadyGeek 16:03, 19 March 2018 (CDT)
 * OK.--Quebec 07:06, 20 March 2018 (CDT)

Final review of user page

 * Is this page complete and ready to be moved into Investment policy statement? --LadyGeek 19:14, 24 March 2018 (CDT)
 * I'm OK with the current version, but I'd like P_I and Longinvest to read it too. I've been thinking about life-cycle finance this week, I'm reading Bodie & Taqqu (2012) and Chapurat et al. (2012) again, and I generally think that finiki needs to better integrate the life-cycle finance ideas, but the IPS page is not necessarily the place for this, as discussed above under "Risk tolerance".--Quebec 08:50, 25 March 2018 (CDT)
 * I have posted a request for review in this --LadyGeek 10:30, 25 March 2018 (CDT)
 * There has been lots of discussion on the forum. LadyGeek and Quebec have made some changes in response to comments by Longinvest and AltaRed. Clearly, the user page is not yet ready for Main space.--Quebec 15:19, 26 March 2018 (CDT)
 * I concur. If/when there is consensus then we need to follow proper merging procedures so that all the history of the two parts are maintained. --Peculiar Investor 09:44, 27 March 2018 (CDT)
 * I also concur. To preserve the edit history, the source page (this page) must be moved onto the target page using "Move", described in Moving a page. "Move" is in conflict with the copy / paste procedure as described in merging. --LadyGeek 18:40, 27 March 2018 (CDT)