Sample Investment Policy Statement
Purpose of Portfolio
The purpose of the portfolio is to provide steady growth of capital until retirement and an inflation-adjusted, after-tax income of $50,000 every year in retirement.
We expect pre-tax, inflation-adjusted returns of 1% from cash, 2% from bonds and 4% from stocks and REITs. We expect a dividend yield of 2% from stocks that will at least keep up with inflation.
Our target retirement date is 2030. We expect to have an estimated nest egg of $2,000,000 in today’s dollars that will supply an annual pre-tax income of $60,000 at a 3% withdrawal rate.
Cash – 5%, Bonds – 15%, Real Return Bonds – 5%, REITs – 5%, Canadian Equities – 20%, US Equities – 22.5%, EAFE Equities – 22.5%, Emerging Markets – 5%.
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 year on June 1st and if necessary, we will rebalance back to the target by selling whatever has gone up and buying whatever has gone down.
Cash will be held in high-interest savings accounts, cashable GICs, money-market funds or T-bills. Bond positions may include: Government of Canada bonds, GICs or XSB. REITs and Canadian Equities may include stocks, XIC, index mutual funds or actively-managed mutual funds. US equities, EAFE equities and Emerging markets are captured through ETFs or index mutual funds. No individual stock position is allowed to exceed 10% of the overall portfolio. The portfolio will avoid: investing in options, futures or any other derivatives, shorting, leveraging, individual positions in foreign stocks, speculative stocks such as junior exploration companies, biotech discovery companies etc.
Benchmarks and Review
As the portfolio is mostly indexed, the only review and evaluation required is for the Canadian Equities and REITs portion of the portfolio. The benchmark for Canadian Equities is the TSX Composite Index and XRE for REITs.
Note: This simplified IPS is for illustration purposes only. Customize based on your goals and needs. The actual dollar amounts and specific dates are for illustration only. Your comments are welcome.