You Need an Investor Policy Statement

Curbside Ad250x250I enjoy internet forums. I’ve been a lurker (non-participating reader) of several forums for quite awhile. Since launching this site, I’ve become a more active participant.

I learn a lot when a question is raised and then answered by dozens of interested people with different backgrounds and perspectives. Crowdsourcing for a solution to any dilemma can be a great way to help you make a decision or simply become more educated on a topic of interest.

A frequent question that comes up on the forums I frequent looks something like this:


“Which is better, a Small Cap Index Fund or Small Cap Value Fund?”

“I’m starting a Roth IRA. Should I use a Target Date Fund, a Total Stock Market Fund, or a 3-Fund Portfolio?”

“My 401(k) has expensive investment choices. Which of the following lousy funds should I have in my 401(k)?”

“I received a bonus / windfall of $10,000 / $100,000 / $1,000,000, How should I invest it?”


The answer to these 4 questions and hundreds of other similar questions that are posted on the internet everyday is the same exact answer:

“You Need an Investor Policy Statement.”


To answer any of these investment questions in isolation is problematic. The specific answer to the question proposed depends on a wide variety of factors that are rarely disclosed. I’d like to help, but I cannot responsibly tell you which fund(s) I think you should hold in a particular account without knowing what holdings you’ve got elsewhere, what your desired risk tolerance and asset allocation might be, your time horizon, or your goals. If you don’t know these things yourself, we need to establish them first. This is where the Investor Policy Statement (IPS) comes into play.

What is an IPS?IPS

An IPS is a list of your investing goals and strategies, incorporating your risk tolerance, desired asset allocation, and specific plans to achieve them.

Where can you get an IPS?

Here’s mine. If you want it, you can have it, although you will certainly need to change it to adapt it your own situation. A much better solution would be to create your own from scratch based on your life circumstances, goals, and risk tolerance.



The Physician On FIRE Investor Policy Statement    


  • Retire early, no later than age 54 / empty nest, most likely earlier.
  • Acquire a large cushion, with > 40x annual expenses and > 50% available before 59.5.


  • Invest in a diverse portfolio of Vanguard Index Funds, keeping expenses low.
  • Accept market returns, rebalancing with monthly investments.
  • Risk tolerance quite high. Anticipate withdrawal rate < 3%.

     Asset Allocation

  • 60% US Stocks, 20% International, 10% REIT, 10% Bond / Cash.
  • U.S. stocks: Lean toward small and mid-cap value to maximize potential long-term return.
  • International stocks: 50% Developed, 50% Emerging Markets

     Other Considerations:

  • Maximize tax deductions via 401(k), 457(b), HSA, donor advised fund. Front load 457(b).
  • Annual backdoor Roth contributions of $5500 each (spouse and I) in January
  • Tax loss harvest when possible, which will require some attention to balances.
  • Fund boys’ 529 accounts (each February & August).
  • Invest in taxable account monthly.
  • forego monthly investment to taxable account to cover large expenses(vehicles, home improvement).

     Pre-retirement Considerations:

  • Research health insurance options.
  • Consider part time work as an option to transition to retirement.
  • Consider what’s best for the boys / family.

     Drawdown Plan:

  • Set up 457(B) to pay $1000 to $2000/ month.
  • Receive dividends and capital gains as cash transfers to bank account.
  • When cash is needed, sell taxable assets and minimize / optimize capital gains.
  • Attempt to remain in 15% tax bracket to avoid taxes on capital gains (unless tax laws change).
  • Convert 401(k) / IRA to Roth as income / tax bracket allows.
  • Donate appreciated securities to Donor Advised Fund when needed to maintain low tax bracket.
  • At 59.5, evaluate 401(k) / IRA and estimate RMD’s, which kick in age 70.5.
  • Anticipate delaying Social Security to get the maximum benefit, assuming good health.
  • Pay for boys’ college with $2000 to $4000 cash (to obtain tax credits), then tap 529’s.

     Retirement Asset Allocation:

  • 10 years of expenses in bonds (in 457(B) and 401(K)).
  • Remainder in Equities, maintaining 3:1 US / International Ratio.
  • Consider decreasing REIT holdings to 5%.

Why do I say you need an IPS?

That’s a fair question, and I’ll admit that need is a rather forceful word, but there are many benefits to creating an IPS. You can get by without one, but you really ought to have one. Here’s why:


  • It defines your desired asset allocation. This is the keystone to a solid IPS, and if you don’t want to bother with creating an IPS document, you should at least start with a sensible asset allocation.


  • It will force you to define your goals, and make a realistic plan to help you achieve them. In my experience, it’s way tougher to get somewhere if you don’t know where you’re going or what mode of transportation you’ll be using.


  • An IPS will make you less likely to jump from one investment to another. Investing with emotion and acting on recent performance data causes many a casual investor to chase returns, buy high, and sell low. These activities will decrease long-term returns and make reaching your goals more difficult and less likely to happen. Sticking with your IPS and updating it infrequently will help you “stay the course” and avoid costly mistakes.


  • If you work with a financial advisor, creating an IPS together will ensure that your advisor understands your goals, and that he or she is helping you invest your money in a way that is consistent with your stated goals.


  • While drafting an IPS, you can expect to learn more about investing, about yourself, and about how your goals can best be achieved, particularly if you are not initially well-versed in personal finance when you begin.


How do I get started?

Start with the basics. Determine your risk tolerance, and come up with a reasonable, preferably simple, asset allocation. Take some time to consider your goals. Talk with your significant other if you’ve got one. When you’ve got some goals figured out, write them down. Take time to understand the investment options available via the workplace and externally, and how to best utilize them to reach your goals.   Your IPS can be much simpler than mine and could fit on an index card. The specifics can wait. You can make it as detailed as you like, of course, and I’ve seen some much longer than mine, too.

Where can I find additional resources?

The Bogleheads Wiki has examples and links to threads with many more examples.

The White Coat Investor has written a How To Guide on writing an IPS.

Google is a great starting point for the answer to just about anything, ever.  This link is set up to search Google for you, so you don’t have to.

In this post, I discuss the individual sections of The PoF IPS and the reasoning behind my choices.

Do you have an IPS? Do you revisit or revise it? How often? Do you think a written down IPS is overkill? Tell me and your fellow readers what you think in the comment box below.

Thank you for stopping by and for taking the time to read all the way to the bottom.  If you find my posts worthwhile, please tell a colleague or 2, or share your favorite post via e-mail, social media, or on your internet forum of choice.  Increasing readership is the best way to support this site and it’s charitable mission.  Thank you for your efforts and support!   -PoF


  • Brian

    I’ve been fine tuning my IPS for awhile but struggle to finalize it. I think what makes it difficult for me to finish it is I can’t predict how many kids my wife and I will have or where I’ll end up working after I finish fellowship. When in your career did you first make an IPS, and do you have advice for how to account for these unknowns?

    • You’re way ahead of the game if you’re fine tuning an IPS before finishing fellowship. Strong work! I came up with mine last year after 8 years in practice. It incorporates some ideas that I’ve had for a long time, and a plan that coalesced more recently.

      An IPS is meant to be a dynamic document. You shouldn’t change it weekly, but it is never “finalized”. A quarterly review is reasonable, but probably more frequent than necessary. Yearly might be just fine, with an additional look with any major life or career change.

  • I never created an IPS, but all of a sudden I was ready and able to FIRE. Probably a couple+ of years ago. Sometimes you get too busy and your assets start to grow because of all the previous savings that you did.

    • I hear you. Need is perhaps too strong a word. I am fairly new to the concept myself and benefitted from buying and holding investments before I really had a cohesive plan. Creating my IPS helped me organize my thoughts and forced me to research tax implications of withdrawal strategies. I’m in a better position now, having created one, and I recommend for any investor, particularly the DIY variety.

  • MCD

    I agree with the message of this post wholeheartedly. I do not have a written IPS today and (after returning to this post several times) this post is helping to persistently nudge me in the right direction.
    Without taking anything from the above, consider reading the recent Medscape Article here: If it hits home with you as it did me, you may make some tweaks to your IPS on your next quarterly review.
    Thanks for all you do. Keep it up!

  • You’re right; I used the word “consider” a number of times. Most are future “considerations” so I don’t have to have my mind made up just yet. I was much more demonstrative in the title. You Need an IPS! A little clickbaity, but decisive.

    • MCD

      Word. As I said, it worked… I keep looking back – “PoF is right.” One day soon I’ll make time for doing it instead of re-reading why I should!

  • Tip lee

    I love this post and have been meaning to do a IPS, so it was really helpful seeing yours and how detailed it was. Quick question, what do you mean by

    “Forego monthly taxable deposits to cover large expenses (vehicles, home improvement).”?

    • Thank you, Tip!

      I could have worded that phrase better, and I will. New wording is “forego monthly investment to taxable account to cover large expenses….”

      In other words, if I need a $20,000 car or a $30,000 kitchen, I will hold off on making my usual low 5-figure taxable investment for a few months to pay for the big ticket item with cash.

      I hope that clears it up.


  • Mr. RIP

    This is a great post. Taking time to write down your IPS is an occasion to reflect on your values and draw a concrete plan. I’m spreading your word in my blog too 🙂

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