Investment Policy Statement: February 2022

Florida scene

The following investment policy statement was developed by a retired teacher, with help from a financial advisor.

INVESTMENT POLICY STATEMENT:

Charles Ellis: Winning the Loser’s Game: Timeless Strategies for Successful Investing

“[An investment] policy is the most powerful antidote to panic. The best shield for long-term policies against the outrageous attacks of acute short-term data and distress are knowledge and understanding – committed in writing. Don’t trust yourself to be completely rational when all around you are driven by emotion. After all, you are human too.”

Reviewing This Statement

This statement will be reviewed whenever there is a substantial change in my financial or life situation, and/or when I rebalance.

• If there is no substantial change in my financial situation, I will wait at least three months between changing the asset allocation in my statement and changing the asset allocation of my investments, and review the change in the statement at that time.
• General principles
  • Strive to minimize the effects of taxes and expenses on investment returns by holding index ETF’s or Funds for the long term.
  • Allocate funds efficiently between taxable and tax-deferred accounts.
  • Aim to keep total portfolio expense ratio as low as possible – currently 10/18/2021 – average ER is 0.13%
• Avoid changes that would trigger significant capital gains taxes. What not to do
  • Do not panic and sell securities due to market corrections.
  • Never try to time the market (whether technical, fundamental, etc.) – don’t fall prey to someone having a “better system.”
  • No individual stock or bonds.
  • Do not Tinker period.
• Savings and Spending
  • Save and/or invest some amount of new cash quarterly.
  • Maintain an Emergency Fund via my checking account or Schwab Cash Account
  • Track spending at regular intervals

Investment Philosophy: “Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth” – John C. Bogle

Risk Tolerance: I’ve won the game, I have “enough” – there is no need for me to take any large percentage of equity risk.

Risk is to be taken on the equity side of the portfolio.

The role of the fixed income side of the portfolio is insurance against the ultimate risk of being surprised by what happens around us. Fixed income is NOT to find the highest performing fixed income vehicle.

Asset Allocation:

Simplicity is the key to overall success and will be the driving force in the portfolio’s asset allocation. Simplicity along with my desire to maintain low risk centers around maintaining an overall 40% stock + 60% fixed-income allocation. Assets should be diversified across major asset classes including U.S. equity, international equity , conventional bond asset class of short to intermediate term, and/or other fixed income, i.e. cash and CD’s.

Asset allocation key is diversification. – Jason Zweig – I think people who scoff at bonds (or foreign stocks for that matter) misunderstand the point of diversification. The reason to diversify is not to increase your return, or even to lower your risk; it’s to insure yourself against the unforeseeable.

Funds & Accounts:

Use low cost index funds – or Index ETF shares which do not overlap and provide maximum diversification across asset classes.  Continue using the DFA funds that I currently hold due to long-term tax liability.

Target Allocation:

Fixed Income (Bonds, CD’s and Cash) = 60%

Total Equity = 40%

Of the 40% equity, 10% allocated to International Equities

Other considerations:

• Be cognizant of too many moving parts in the portfolio. Do not add a new holdings without considerable thought, trying to eliminate a holding if I add one.
• Automate future contributions wherever possible.
• Rebalance according to set tolerance bands. 5% +/-
• No market timing.
• My political views have no place in making investment decisions.
• Ignore market noise as professed by economists or other financial prognosticators that think they have a better way and/or make predictions about market movements.
• Remember as far as International equities high growth of different country economies has not a thing to do with how those equities will perform.
• Sub-allocations are not as important as maintaining the overall 60/40 fixed income/stock allocation – no need to make things complex in order to meet sub-allocation targets.
• Small allocations, less than 10% to a particular asset class or investment have little impact on the overall performance. Small allocations also make more moving parts in the portfolio to do something with eventually.