Investment Policy Statement (IPS)
A formal written document that establishes an investor's goals, risk tolerance, time horizon, and asset allocation guidelines.
What is Investment Policy Statement?
An investment policy statement (IPS) is a formal written document that establishes the framework and guidelines for managing an investor's portfolio. It captures the investor's financial goals, risk tolerance, time horizon, liquidity needs, tax considerations, legal constraints, and unique circumstances, and translates these into a target asset allocation and investment strategy. An IPS serves as a roadmap for portfolio managers and helps prevent emotionally driven decisions during market volatility by anchoring strategy to long-term objectives agreed upon in advance. IPS documents are standard practice for institutional investors such as pension funds and endowments, and are increasingly recommended for individual investors.
Example
Harvard University's endowment maintains a formal IPS that targets a 5% annual distribution rate to support university operations, specifies a long-term real return objective of 5%+ above inflation, and sets strategic asset allocation ranges across equities, fixed income, real assets, and private markets—with permitted deviations that trigger rebalancing.