Do you have a Personal Investment Policy Statement?

[kyounge1956]

I've been waiting about a month for The only guide you'll ever need for the Right Financial Plan to come in to the library. It finally got here yesterday, but is not what I was expecting. I thought it would be a guide to how to write your personal investment policy, but it's more a guide to how to carry out the policy once you have one. The chapter on how to write the statement is very brief and general and I was hoping for some much more specific guidance in that area, like worksheets or questionnaires. I'd like to develop such a policy statement, but I have no idea where to start. Do you have a Personal Investment Policy, and if so how did you develop it? Can you suggest a book or website that will help?

 

[traineeinvestor]

Yes we do. I initially developed it as a road map to get us to retirement - starting with our then financial position, an estimate for what we would need to have a sustainable retirement and estimates of what is needed in terms of savings, time and return on investments to bridge the gap. It includes a retirement budget (frequently revised), a couple of pages on what we intend to do with ourselves and thoughts on what we will do if it looks like we will come up financially short at some stage after we retire.

I found the parts of "Strategy for the Wealthy Family" by Mark Haynes Daniell to be useful (even if the book was aimed at families with a lot more money than we will ever have).

 

[LOL!]

As with all questions like this, start with a search of the Bogleheads' Wiki:
Investment Policy Statement - Bogleheads

Make sure you put in some specific rules about tax-loss harvesting and about rebalancing.

 

[kyounge1956]

As with all questions like this, start with a search of the Bogleheads' Wiki:
Investment Policy Statement - Bogleheads

Make sure you put in some specific rules about tax-loss harvesting and about rebalancing.

Thanks for that excellent suggestion. I searched the Bogleheads forum but couldn't find anything quickly, but I am so unused to the availability of a Wiki that I usually forget to look there. I think I will be able to make a good start with that info.

I do need to put in rebalancing rules, but don't need to consider tax loss harvesting because I don't have a taxable investment account. My whole portfolio is in a 457 plan and a Roth IRA.

 

[Bimmerbill]

Interesting, I don't think I've ever seen this before. I'll have to read up on it.

 

[CuppaJoe]

Thanks, LOL! The links save nicely to my "read offline" app.

 

[Nords]

I do need to put in rebalancing rules...

The trick is to make them as simple as possible and as mechanical (unemotional) as possible. Otherwise you'll end up endlessly debating whether today is the day or tomorrow would be better.

One issue that rebalancing doesn't address is "What if everything goes down at once?" Spouse and I were taken aback with this during the 2008 recession.

Nobody complains about "What if everything goes up at once?", but it's another indication that you're not adequately diversified.

 

[LOL!]

I would like to propose that if you want to realize the tax loss in the year 2010, then the best day to do so is when the loss is the largest and the cost of the replacement position (similar, but not substantially identical) is concomitantly at the lowest.

This best day is also not a bad day to rebalance from bonds to stocks. It is not the best day to rebalance from stocks to bonds though.

Thus I propose that a so-called large one-day drop in the market indices is near the day to tax-loss harvest. That is, if your Small Cap Value fund drops 4% in one day, then that's the day to sell it and buy another Small Cap Value fund in a tax-loss harvesting move. Or if there is a large one-day drop in your emerging markets EEM fund, that's the day to sell it and buy the emerging markets VWO fund.

So the "when" to think about rebalancing and TLHing is fairly obvious and unemotional to me.

Here's a specific example:

On May 20th, EEM had a one-day drop from the previous day of 5% to close at 36.17 while the 52-week low for EEM is 35.21 probably reached intraday on May 25th. There were not too many days that EEM traded near 36 in the last year