Executive Summary

(2 of 7)

Executive Summary

The executive summary of your investment policy statement provides an overview of your current situation and what you expect from your portfolio. It’s a snapshot in time. Update your executive summary whenever you rebalance your portfolio.

Things To Know

  • The executive summary is a snapshot of your current situation.

Here are the questions to answer:

  • What are the current assets of my portfolio today?
  • How much do I plan to invest each month?
  • How many years will I be investing?
  • How much do I expect my portfolio to return each year over inflation?
  • How much of a loss can I accept over a three-month period, a one-year period, and a five-year period?
  • What is my target asset allocation?
  • What are my benchmarks for my portfolio?

To help you answer the first six questions, review courses on risk tolerance and determining your asset mix.

Some notes about benchmarks

When it comes to answering the final question, choose your benchmarks wisely. Say you have a portfolio that’s 40% invested in U.S. large-company stocks, 10% in U.S. small-company stocks, 30% in bonds, and 10% in foreign stocks. Don’t use the S&P 500 as your portfolio’s benchmark. It’s inappropriate. After all, the S&P 500 is made up strictly of U.S. large-company stocks. The S&P 500 may be a suitable benchmark for the 40% of your portfolio that’s comprised of U.S. large-company stocks, but not for your entire portfolio.

In most cases, you’ll need to use a combination of benchmarks to measure the success of your portfolio as a whole and the success of your individual investments.

You’ll also need to decide over what time periods you want to benchmark your portfolio and your investments. Do you want to benchmark your portfolio’s annual returns? Its three- or five-year returns? Some combination thereof? We recommend keeping abreast of your returns yearly, but focusing mostly on longer-term results.