In many ways, an investment policy statement is like a “blueprint” for your wealthbuilding, with the investment executive in the role of financial “architect.” By working together, you and your investment professional will be able to identify your risk parameters and set realistic goals.

Your investment executive will ask you a series of questions to learn more about your attitudes toward risk, your current and future income needs, how much liquidity you’ll need, your expectations for performance and rate of return, and the source of your assets. Your current investment mix also will be reviewed to ensure that you have enough diversification among asset classes to help you achieve your goals.

Once you have clarified your needs, your investment professional can help you set a course of action. He or she will discuss the basics of investing as well as focus on diversification in order to develop a personalized model for asset allocation.

The benefits of asset allocation are clear. According to an article in the “Financial Analysts’ Journal” by Gary Brinson, Randy Hood and Gil Beebower, asset allocation accounts for more than 90 percent of your portfolio’s performance. However, the authors also point out that making the key decisions necessary to create the right asset allocation model for your investment program is not easy. It requires teamwork between an investor and a financial professional.

After all the information gathering is complete, your investment professional will be well prepared to recommend specific investment strategies for achieving your goals.

The Advantages

How can having an investment policy statement help you? First, by putting your objectives in writing, you are given the opportunity to clarify your goals. Documenting your investment policy puts everything “on the record,” and your goals become more real once they’re in writing. Be sure to be as specific as possible in terms of time horizon and dollar amounts.

Second, you can refer to your trusty blueprint when times get tough and your emotions want to take over. Your investment policy can help you stay disciplined in a market downturn because it provides a visual reminder of your program. Even if your emotions are getting the best of you, sticking with your plan is the best way to keep moving toward your goals.

Finally, you can use your investment policy to measure your progress. Since your goals are summarized for you, it makes it much easier to measure performance and rates of return, as well as make adjustments if needed.

Marc A. Pellerin is an associate vice president and investment advisor with Advest Inc. in Lewiston.