What is an investment policy statement (IPS)?

An investment policy statement (IPS) is a comprehensive document that serves as a guide for both investors and their advisors. It outlines the investor's financial goals, risk tolerance, investment strategies, and the specific guidelines to be followed in managing the investment portfolio. The purpose of an IPS is to provide a clear framework for investment decisions, ensuring that all actions align with the investor's objectives and circumstances. This includes detailing asset allocation, performance benchmarks, and the process for monitoring and rebalancing the portfolio over time.

Having an IPS is crucial for maintaining discipline in investing, particularly during volatile market conditions, as it acts as a reference point for making informed decisions rather than reacting impulsively. The elements encompassed in an IPS not only help ensure adherence to the investment strategy but also allow for easier communication between the investor and their financial advisor.

The other choices, while related to financial documentation, do not accurately capture the purpose and function of an IPS, which emphasizes the strategic planning aspect tailored to individual investor needs.