Investmen Policy Statement

I always tell people to invest rationally and prudently. Then you may ask: “But how?” To be honest with you, I was once ‘lost’ in the stock market before, I found myself investing aimlessly, invested in one counter then sold quickly when I heard some bad news or when I was not sure about the stock; or sometimes I found myself buying into a counter without any research at all like I was buying into a hurry, worried that if I delay the stock price would rally further! Then I realized I was not investing at all, I was simply speculating, ‘hoping’ the price will go higher after I bought which in fact it usually didn’t because I bought when everyone else were buying too which was already in an overbought position.

So I finally looked into what all the experts have been saying: “Create an investment plan first”. I’ve heard so many times but I never followed this important step. I hope by sharing with you will help you to be a wiser investor. Below is a copy of a sample investment policy statement. An investment policy statement defines your goals and objectives and sets the guidelines for your investment activities. Most importantly, it provides the necessary disciplinary function of the investing business that any rational investor needed most. It is by far the most important step of the investment process however, most investors fail to recognize it.

Investment Policy Statement for Mr. Market, aged 40

Objective of Portfolio
The objective of this portfolio is to provide steady growth of capital until retirement and an inflation-adjusted of RM50,000 every year for 20 years in retirement.

Return Expectations
Return expectations are: 3% for cash, 8% for unit trust, 10% for stocks. In which the returns for unit trust and stocks include dividend yields.

Time Horizon
My target retirement date is 2030 when I am 60 years old. My initial investment is RM200,000, supplemented by annual periodic investment of RM12,000 per year or RM1,000 per month for until 2030.

Asset Allocation
Cash – 20%, Malaysia Equities – 30%, Singapore Equities – 40%, US Equities – 10%

Rebalancing
The investment portfolio will be rebalanced to the target asset allocation when new money is added. The portfolio’s asset allocation will be checked once every 6 months on June 1st and Dec 1st. I will rebalance back to the target by selling whatever has gone up and buying whatever has gone down.

Investment Vehicles
Cash will be held in either Fixed Deposit accounts or Merdeka Bonds if applicable. Local equities and foreign markets equities may include direct purchase from the relevant stock markets or through unit trust/ mutual funds run by well reputable fund managers. My portfolio will avoid: investing in options, futures and other derivatives, illiquid companies with average daily volume below 500,000 shares, and companies without proven track records.

Benchmark and Review
The benchmark for Malaysian equities – KLCI; Singapore – Straits Times Index (STI); U.S.- Dow Jones Index(DJI), Hong Kong- Hang Seng Index(HIS)


Note: This is just a sample investment policy for illustration purpose only. You can customize based on your goals and needs. A good investment policy will be as detail as possible.