Personal Economic Values Statement
Insert your personal statement from Chapter 4. This defines your values and drives your future investment goals and decisions.
Background
In this section, list your age, income, and current assets by type. Describe your investment experience. This is a snapshot of where you are now. If you’re an insider or hold a controlling interest of any publicly traded companies, make a note of them to share with the investment professionals you work with.
Investment Objectives
Review Chapter 4, Step 2, How do you see yourself? What you want to earn, do, and acquire? From that list, consider your savings strategies related to these goals. Decide when and how you will generate and save the assets needed to attain these goals. For example, if you want to retire in 7 years, determine the amount of money you’ll need to save and the return you’ll require in order to understand the type of investment you’ll need to hold to reach those objectives.
Describe what you need to achieve with your savings and investments to arrive at each of your goals. You may also want to include your expected target return. A financial planner or investment professional can help project these figures and other calculations, and guide you through this process.
Complete any of the suggested statements below or add some of your own.
I will need $_________ in years for _____ .
I expect to earn an average of % return each year. I seek to outperform a benchmark of % of the Canadian bond index and % each of the Canadian and US stock markets (or some other benchmark).
When I retire in _ years, I’ll need income of $_________ after-tax, in today’s dollars.
I want to grow my investments at the expense of volatility over a full market cycle.I prefer to have my investments grow steadily with lower highs and higher lows.
Time Horizon
From Chapter 4, Step 2, “How do you see yourself?” establish the timeline for each of your financial objectives. Are there activities and experiences that you’ll need to fund at specific dates? When will you retire, or go to school (or send your children/grandchildren to school), or otherwise need to use your savings? Are you a long-term investor, or do you only have a few years?
By understanding your time horizon for investing, you can determine what types of investments are most suitable. If you need a large amount of your savings in a short period of time, it may be too risky to invest in volatile investments, but if you can wait several years, investing in more volatile investments provide much healthier returns. Similarly, you can arrange investments that mature on a specific date to align with necessary withdrawals, or to stagger so that they have a diversity of maturities. Below are a few suggestions to identify your specific investment time frames.
I do not expect to withdraw funds from my savings for at least ____ years. I can make investments that require a time horizon of ___.
I must keep __% of my portfolio available in investments that are accessible.
Risk Tolerance
In Chapter 4, Step 5, you described what risk means to you and what you’re prepared to tolerate. Recall from Chapter 2 that risk tolerance can change depending on your recent and other past financial experiences. Establishing your overriding risk tolerance helps to remind you of your long-range views, rather than your changing feelings and biases when volatility increases, or after substantial wins or losses.
Add your risk tolerance statement to your IPS. Include your comfort or discomfort with volatility. Describe what you will and will not tolerate, and what causes you to lose sleep, or which types of situations may influence you to exit your investment strategy at the wrong time. You may want to list any specific issues that concern you.
I’d describe my tolerance for risk as______.
I can withstand market volatility through a full market cycle of _____.
I worry most about ______________.
I’m generally not concerned about ___________.
Investment Strategy
From Chapter 4, Step 4, review your beliefs about money, and identify those that relate to how you would like to invest in the future. In this section of your IPS, describe your investment strategy as a philosophy. The purpose of this section is to provide a summary of how you want your investments to perform and what you will specifically do to achieve that result.
Describe aspects of your general approach, such as whether you will focus on value-based investments, or whether you prefer momentum and growth strategies. Alternatively, you may want to select and hold low-cost broad market ETFs in a passive investment approach. Or, you may have something completely different in mind, such as investing in environmentally sensitive or socially minded investments. You can also include your desire to maintain or avoid leverage. Any explanation of how you want to grow your wealth is suitable to include. You can even describe the reasons for your approach since this will make it easier to stick to your methods in the future if you become tempted by an alternative.
The following sections will provide helpful descriptions of several investment strategies. Once you have read these, you may want to update your IPS to incorporate or amend your strategy.
You may decide to hire a professional manager to take the reins. In this case, this section will help you select a professional advisor who uses a similar approach.
Asset Allocation
The quantity that you allocate to various asset classes is determined by several factors, including the following:
the pace at which you want your investments to grow;
the amount of time that you can allow your investments to oscillate in the market;
your willingness and capacity to accept volatility;
the amount of cash you want to keep available;
and when you’ll need to draw on your savings.
Below, you can use the table to outline the minimum, maximum and target amounts of each asset class to maintain. For example, you may feel that it is prudent to keep 10% of your investible assets in cash, or you may feel that holding cash is a wasted opportunity. You can set those constraints below.
| Asset | Minimum % | Maximum % | Target % |
| Cash | |||
| Fixed Income (Bonds) | |||
| Canadian/US Equities | |||
| International Equities | |||
| Other/Alternative Investments |
Permitted Securities and Decision-Making
By placing specific security constraints and decision-making processes on your IPS, you can navigate pitfalls and avoid the regret that comes with investing outside of your comfort zone. You may decide to restrict certain companies or sectors, such as oil and gas producers, or limit your investments to only large liquid companies by setting the minimum market capitalization to $1 billion or more. You may also decide to add guidelines that restrict investments in high-risk options to a maximum percentage of your holdings. Use this section to specify any constraints, limitations, and decisions that you want to avoid. The below phrases are only examples to get you started. Be as precise as you feel will benefit you.
I only want to hold investments that .
I will invest solely in opportunities that make me feel __.
All bonds will be rated a minimum of _ credit rating. I will limit holdings in one issuer to a maximum of %.
Derivatives may be used to and will not exceed % of my portfolio.
I will only invest in options with low/medium/high price variability measured by a beta of or lower.
I will not average-down on investments that drop in value.
Portfolio Monitoring & Rebalancing Frequency
Earlier in this chapter, we introduced issues that arise when investors check their investments too often. Here is an opportunity to reduce your anxiety and limit the impact of frequent trading by planning to rebalance and review your investments on a schedule. For example, you may decide that your portfolio should be reset to your asset allocation every three months – this is called quarterly tactical asset allocation. Or, if you use managed funds or ETFs, you may prefer to address it once a year.
If your investments are managed professionally, the need to review your investments is significantly reduced, assuming that the professional manages all ongoing decisions. In any event, you can decide the frequency that is suitable for your situation.
Generally, I intend to hold onto positions for at least .
I am targeting % turnover per year.
I will review my investments no more than .