What is one primary purpose of an investment policy statement?

An investment policy statement (IPS) serves as a critical blueprint for managing an investment portfolio by providing guidelines for portfolio construction and management. Its primary purpose is to establish a clear framework that outlines the goals and objectives of the investor, including their risk tolerance, investment time horizon, and liquidity needs. This framework aids in decision-making by specifying the strategies that should be followed to achieve the desired investment outcomes.

The IPS ensures that all investment decisions are aligned with the overall objectives of the investor, promoting consistent and disciplined investing practices. While it may touch on certain aspects such as acceptable asset classes or investment strategies, it does not typically delve into specifying exact investments or recommending specific market sectors. Additionally, while tax implications can be a consideration, they are generally not the primary focus of the IPS. This comprehensive approach helps in guiding the investor in navigating the complexities of the investment landscape effectively.