Have you ever walked into a grocery store and randomly took items off the shelf and put them in your cart without any regard for what you were choosing or what it cost? Probably not. It’s more likely that before going to the store, you walk around your house to see what you need, make a detailed list, and clip coupons. Once you arrive at the store, you most likely browse around to look at your choices, compare prices, and take advantage of sales.
Why then would you treat your finances, investments, and insurance any differently? Many times, I look at a person’s financial inventory and find an assortment of assets and liabilities that more resemble an uncompleted jigsaw puzzle than a cohesive, well thought out strategy. You’re not a financial expert or an advisor, I get that. However, I don’t need to be a physician to know I’m sick when I’m running a fever or feeling run down and achy. In its most basic sense, it just boils down to awareness and common sense.
First and foremost, everyone should have a personal Investment Policy Statement (IPS).
Whether it’s a formal document, sticky note, or written on the back of a cocktail napkin that you keep with you, an IPS is your rulebook for what you will and won’t do with your money and a key part of a formal financial or retirement analysis.
Here are five reasons why you should create or schedule time with a qualified advisor to create a personal Investment Policy Statement:
1. Eliminates or delays buying into the next “can’t miss” opportunity ~ We all have gotten that can’t miss stock tip or heard stories of huge, short-term gains on the next big thing. You’re smart…those are few and far between if real at all. If your IPS doesn’t explicitly prohibit buying into these opportunities, it should at least demand that a reasonable delay be required between when you first hear this hot tip and when you execute the trade
2. Eliminates financial clutter ~ Look at what you own and what you owe. Do you carry balances on your credit cards unnecessarily? Do you have redundant assets or liabilities? Are you concentrated in any one thing-maybe your business? Are you paying excessive fees on anything? Clean your financial house and make it a practice to clean house on a regular basis
3. Provides guardrails to keep you on course ~ Did you ever watch kids bowl where there are guardrails set up to eliminate gutter balls? That’s what an IPS can do for you. If it’s not on your list, you can’t do it, buy it, sell it, or subscribe to it. Your IPS will keep you between the lines and may prevent you from throwing a financial gutter ball
4. Creates financial discipline and establishes healthy financial habits ~ I’ll debate anyone that even the worst spenders and savers can change those behaviors and build healthy spending, saving, and investing habits. They aren’t going to do it without some help and some rules though. The IPS is your rulebook to help you improve your financial behavior and give you the life you deserve
5. Is part of a formal, well thought out financial and/or retirement strategy ~ Most experienced asset managers and qualified retirement plans operate from a very detailed Investment Policy Statement. If these professionals see the value in an IPS, shouldn’t everyone?
Your IPS doesn’t have to be the next edition of War and Peace. It can be as detailed as you want, or as simple as a few bullet points scribbled on a piece of paper. Just give it some thought, ask yourself some tough questions and make it an extension of what you value and who you are.
Finally, don’t let the financial sales industry tell you that all your questions can be answered if you buy their book or subscribe to their newsletter. Additionally, there’s more to an effective investment strategy than buying a no-load index fund. Take the time to care and plan for yourself.
Drop me a note at sal@lakepointeadvisors.com if I can help.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. LakePointe Advisors does not provide legal or tax advice.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Advisory services offered through Fourth Dimension Wealth LLC, a Registered Investment Advisor. LakePointe Advisors LLC and Fourth Dimension Wealth LLC are separate entities.
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