How to Write an Investing Plan

Every lawyer, law student, professional and investor needs an Investment Policy Statement.

Investment Policy Statements don’t have to be long or complicated. In my opinion, some of the best Investment Policy Statements are less than two pages.

Remember back in law school when the Torts professor allowed you to bring one page of notes into the final exam? That’s exactly how your IPS should look. It contains only the essential facts. It’s everything you need to know about your financial life and where you’re going.

There are several benefits to having an Investment Policy Statement.

First, it’s the one document to answer all of your investing questions. By far, the most common post you’ll see on financial forums runs something like this, “I have $50K sitting in cash in my bank account, how should I invest it?”

The only reasonable answer is: Invest it according to your Investment Policy Statement.

There are too many circumstances specific to you for there to be one universal answer as to how you should invest your money, most of which would never be disclosed on an internet forum anyway.

That’s because an IPS is a rather personal document. It contains your values. You write down what you’re hoping to achieve with your (financial) life. It contains a lot of things most people aren’t comfortable sharing with just anyone.

For those reasons, it’s something you need to figure out. Whether you take the time to write it down or not, you’ll be grappling with the questions in life anyway, so you might as well write it down.

Second, it will keep you on the straight and narrow. You’re a high achiever. You’ve worked hard to get where you are and now you’re reading a personal finance blog directed at lawyers. I know your type. In a couple of years you’re going to still be thinking about this stuff and you’ll come across the latest trend in personal finance (peer-to-peer lending, robo-advisors, etc.) Should you invest? Your Investment Policy Statement will guide you. It will remind you of your goals and objectives and the best way to accomplish them.

Third, especially if you work with a financial advisor, your IPS will ensure that the advisor and you are working together to invest your money in a way that’s consistent with your goals. This applies to couples as well, which can benefit from having an IPS to confirm that they’re “on the same page” when it comes to finances.

I strongly believe that those investors that take the time write out an IPS are far less likely to make serious investment errors.

Luckily, your IPS only needs a few things:

1. Goals
2. Investment choices to achieve those goals
3. Cheat Sheet with Tax/Insurance information

I especially like keeping the cheat sheet with my tax/insurance information in my IPS. It’s probably the part I use most frequently, since otherwise it’s difficult to remember things like your marginal rate, the amount of your renter insurance coverage or how much you’d get paid if you had a short-term disability. The cheat sheet lets me keep up with those important details at a glance.

Here’s a look at a basic IPS I put together for this post:

The first page functions as an executive summary. There are two important parts. First, there’s a simple reminder that I believe in the simple approach to investing. I want to buy-and-hold, get the market return and minimize fees and taxes. Second, I’ve listed objectives in order of priority.

The second page contains a summary of accounts, contribution limits and various saving goals.

The third page contains an asset allocation:

And finally, the fourth page has your insurance coverage details:

As you can see, you could easily consolidate this to two pages if you want. But I like the simplicity of having each page contain a theme.

Precedent Investment Policy Statements

Because I know lawyers like templates (we call them precedent), I’ve collected quite a few examples you can click through and use when making your own. Don’t worry – I’m just as lazy as you are and would never try to draft from scratch.

Some from around the web:

• Morningstar’s Investment Policy Worksheet
• PhysicianOnFire’s Investment Policy Statement

A few from the Bogleheads:

• Sunny’s Investment Policy Statement (Compact and Concise)
• Peter’s Investment Policy Statement (Company and Concise)
• White Coat Investor’s Investment Policy Statement
• Dale’s Investment Policy Statement (Comprehensive)

Let’s talk about it. Have you drafted an IPS? What is in yours and what do you leave out? Comment below!