I know most people's investment policy is largely private, but it also seems to be something beginners struggle with. We just updated our investment policy, and I thought this might be useful to some of you out there. An anonymized version is below.
For context, I am 37 and currently have net worth around $1.5M.
What is your investment policy?
Savings and Investment Policy
September 2, 2018
Goal:
Our goal is to achieve financial independence around 2025. FI is defined as no longer needing to work to support our needs, but with the option to continue working to further support our wants.
Requirements:We expect to need investment accounts with a value of ~$2.0M, plus a paid off house. We also plan to have $60K in college funds for each child.
Savings Plan: We will maintain a minimum of a 50% savings rate, defined as take home pay + 401k contributions-total spending. We can adjust our lifestyle upwards or downwards (with a preference towards downwards) to maintain this savings rate. Exceptions will be made for short-term career transitions and moving expenses, not to exceed 3 months.
We will continue to max out 401k allocations with pre-tax dollars. College funds will be seeded with an initial $5K, and contributed to at a rate of $250/child/mo. Any additional future option to increase savings in pre-tax or ROTH accounts may be taken without revising this policy, but options that reduce them require revisions to this policy.
Additional post tax savings will be invested ~50% in taxable brokerage accounts and ~50% will be used to pay down the mortgage.
Savings Allocations
All individual accounts will have a target allocation of 65/35 equity/fixed income in the case of portfolios with only stock/FI options. Portfolios that have real estate or other alternatives will have a 65/25/10 split, with 10 going to alternatives.
The equity component of the portfolio will be split 70% to US stocks and 30% to International stocks. The US component will be diversified between small/mid/large cap stocks based on the simplest method to achieve this diversification. The foreign component will be diversified between developed and emerging markets based on the simplest method to achieve this diversification.
The bond component of the portfolio will use consolidated bond funds for any portfolio with less than $75K in bond allocation. Portfolios with more than $75K in bond allocation may have independent bond components to reflect the broader bond market, but this break-out will be defined before investing money.
College Funds will be invested in age-appropriate options, and will become more conservative over time.
As exceptions, accounts with less than $20K may be invested in single index funds, or single bond funds for simplicity. They will be moved to the target allocation if the balance ever exceeds $20K.
The ROTH IRA will be invested with the Schwab Intelligent Portfolio, which will vary somewhat from the allocations above.
Alternative investments such as the exercise of company stock options or [Investment in family members Real Estate Development Company] may be made on an ad-hoc basis, as long as the total value of these investments doesn’t exceed 7.5% of our total investment portfolio.
Direct real estate investments may be made outside of this policy if there is good opportunity to do so.
Rebalancing:All accounts will be re-balanced as this policy goes into effect. Afterwards, they will be rebalanced on the following schedule
• [Wife’s] 401k: Will be rebalanced annually after maximizing contributions
• Schwab IRA: Will be rebalanced through reinvested dividends, or annually in December or January.
• [Husband’s] ROTH IRA: Will be rebalanced automatically by Schwab
• 529 Plans: Will automatically become more conservative as the kids age
• Taxable Brokerage: Will be re-balanced through additional contributions, or in June of each year if needed.
Plan Review:This plan will be reviewed annually in December or January, or as investment priorities change (job change, move, etc). Logistical changes, such as consolidating retirement accounts, can be made without official changes to this document. Changes to target allocations (unless listed above) may be made three months after this policy has been revised unless they are driven by a major life decision.