What is an investment policy statement (IPS)?

An investment policy statement (IPS) serves as a foundational tool in investment management. It is a comprehensive document that outlines an investor's specific goals, risk tolerance, time horizon, and investment strategies. By detailing the investor's objectives and constraints, the IPS helps guide the investment management process and ensures that financial decisions align with the investor's preferences and needs.

The importance of having an IPS lies in its ability to create a structured approach to investing, allowing both the investor and the portfolio manager to have a clear roadmap. It facilitates effective communication and helps prevent emotional decision-making during market fluctuations. By establishing a clear framework, the IPS is critical in maintaining a disciplined investment strategy.

In contrast, the other options describe different documents or concepts that do not serve the same purpose as an IPS. A report on market trends and forecasts focuses on external market conditions, while a summary of a company's annual financial performance offers insights into that specific company but lacks a personal investment context. An agreement between investors and brokers regarding fees relates to the financial arrangements of investment services rather than the investor's strategy or goals. Hence, the definition provided in the correct choice encapsulates the essence of what an investment policy statement is meant to achieve.