Steady Hand at the Tiller – The Importance of an Investment Policy Statement

The recent market volatility can be scary for any investor.  After six years of positive returns, investors had finally started to feel good about investing again.  This recent correction can be a small reminder of what most of us lived through in 2007-2009.  We believe this is a correction in a long term bull market.   However, we know it can be difficult for investors to maintain a long term perspective and not want to react to the short term swings.  This is when we pull out the Investment Policy Statement (IPS).

Each of our clients has an IPS that documents their investment plan and creates guidelines for disciplined decision making.  It serves as a roadmap for investment success and stops investors from making bad investment decisions.  At its core, it serves to remove emotion from investing and helps investors make rational decisions.   The IPS incorporates each client’s time horizons, liquidity needs, constraints, risk tolerance, return objectives and asset allocation guidelines.  We develop the guidelines taking into account all sorts of market gyrations, risk and return levels.  We know that sticking to the plan and maintaining the appropriate asset allocations will help our clients achieve their investment goals.  Trying to time the market with big asset allocation moves are more often than not harmful and can derail a financial plan.

If you are a Sigma client, you have an IPS and it’s updated at least once a year.  If you’re not a Sigma client, and don’t have an IPS, give us a call and we’d be happy to help you develop one.

All comments and suggestions are welcome.

Marisa A. Bradbury, CFA®, CFP®