Kudy's Investment Policy Statement (IPS)

[arebelspy]

We frequently mention to new investors who aren't sure what direction they want to take that they should make an investment policy statement, and link to the Boglehead's page on the topic: http://www.bogleheads.org/wiki/IPS

Kudy recently created an IPS I thought was worth sharing.  It's fairly simple and elegant, I enjoyed it: http://www.monetarymusings.com/investment-policy-statement/

Here is the blog post discussing it: http://www.monetarymusings.com/539/my-dark-investment-secret/

Enjoy!

[fiveoclockshadow]

Good link - that's a nice example of a short and sweet IPS for a Mustachian.

Only odd part about it is the 6 month rebalance.  That's sort of fast by most recommendations.  You might check in on a taxable account fairly frequently for tax loss harvesting opportunities but that's not really rebalancing.  Most of the asset allocation advice I've seen recommends keeping rebalances at the shortest of a year and as long as three.  You can gently steer new contributions along the way as well.  I think most back testing and Monte Carlo tends to show no advantage and a slight return disadvantage to more rapid rebalancing.

Anywho - thanks for pointing this one out.  Most of the time example IPS are for standard retirees rather than FIRE.

[arebelspy]

I agree with the rebalancing - for one in their drawdown phase.

For one accumulating, rebalancing should be happening on an ongoing basis via your investments.

I.e. large caps are down - put more of your month's savings into that.  Cash percent is down below your targeted 5, don't invest as much that month.  Continual adjustments of your investments should make rebalancing almost irrelevant and need never occur in the accumulation phase.

(That would be in my IPS - rebalancing is mostly unnecessary and balance on an ongoing basis via purchases, then once/year if stuff is way out of whack.)

[Freeyourchains2]

The only thing missing is the allocation rebalancing mission statement. What criteria are you looking for with your rebalances every 6 months, 1 year, 3 years, etc? There are no additional details as to his rebalancing criteria.

Assumption: since The U.S. Large Equities funds did extremely during the recovery climb, he is investing 35% (the highest) in them, without attempting to time the market.

Though, his rebalance could be late to the game and the U.S. Large equities funds could sell (even crash) on a record High DOW, just when he keeps automatically contributing and buying at "high" levels.

The average, new 401k fund or any fund investor still reacts to market swings in all the asset allocation classes, instead of being pro-active and "buying low, selling high without emotions".

Most 401k fund investors lost their life's savings by selling low after a 50%-90% loss during a market crash. Because they automatically bought companies high when the DOW was at it's peak for awhile.

They fail to grasp the "investor/trading/business/management skills" when they automate their investments into funds. It's extremely not guaranteed to make money in funds. In fact, the fund managers continue to fee you even when you lose.

You must be able to read Market Swings, sector swings, and know well and even somewhat predict what yield of returns are at the current time period per allocation class.

For a better explanation see here: http://earlyretirementextreme.com/wiki/index.php?title=Permanent_Portfolio

[kudy]

Hey, thanks arebelspy!

This was on my to-do list for a few months, and I was making it a bigger deal in my head. I figured it doesn't have to be complicated or complete, so what I have published will likely be a living document that I improve and change as I learn, etc.

As for rebalancing - interesting feedback; I was planning to do something closer to what arebelspy described, manually allocating money where it is needed to stay in balance on a regular basis. Some of my contributions are automated though, and I am not quite to the right level of invested assets at this point that I can actually buy some of the funds I will need to get in balance (as detailed in the blog post), so I was hoping to revisit the entire thing more thoroughly every 6 months to see where I am at.

Does anyone have any other feedback that can help me refine my attempt? I have see-sawed on the actual allocations so many times, but I think what I landed on is pretty aggressive, and not too specific.

[arebelspy]

Essentially what you are missing is what your exact rebalance bands will be - that is, if you check every 6 months and see the one is at 34% instead of 35%, I'm assuming you won't sell others to buy more?

So what are your rebalance bands, timeframes, and how will you rebalance (and if it's the ongoing balancing via target purchases with new investment funds, state that).

I like it quite a bit though, the AA is good, but perhaps a bit complicated for me.  I like the low cash, low bonds though.

[arebelspy]

(Necro post)

True story: I opened this tab yesterday to ask Kudy if he's going to update his IPS now that he's semi-ER'd, have it sitting open today, and I check my RSS feeds this morning to find out he's discontinuing the blog.

D'oh!

Kudy, any thoughts (post here maybe?) on what, if anything, changed in the last 5 1/2 years (holy biscuits, time flies!)?