A sound investment plan—or Investment Policy Statement (IPS) begins by outlining the investor’s objective as well as any significant constraints. Defining these elements is essential because the plan needs to fit the investor; copying other strategies can prove unwise.

Because most objectives are long-term, the plan should be designed to endure through changing market environments, and should be flexible enough to adjust for unexpected events along the way. If the investor has multiple goals (for example, paying for both retirement and a child’s college expenses), each needs to be accounted for. Once the plan is in place, the investor should evaluate it at regular intervals.

Having an Investment Plan

The Framework of an Investment Plan should address the following key elements: 

Financial Goals & Objectives; Time Horizon; Asset Allocation; Diversification; Rebalancing; Monitoring and Evaluation

Most investment goals are straightforward—saving for retirement, preserving assets, funding a retirement plan, or meeting a university’s spending requirements, for example. Constraints, on the other hand, can be either simple or complex, depending on the investor and the situation. The primary constraint in meeting any objective is the investor’s tolerance for market risk. Importantly, risk and potential return are generally related, in that the desire for greater return will require taking on greater exposure to market risk.

In most cases, the investment time horizon is another key constraint; for example, a university endowment with a theoretically infinite horizon might take some risks that would be unwise for an investor looking to fund a child’s college education. Other constraints can include exposure to taxes, liquidity requirements, legal issues, or unique factors such as a desire to avoid certain investments entirely. Because constraints may change over time, they should be closely monitored.

Both asset allocation and diversification are rooted in the idea of balance. Because all investments involve risk, investors must manage the balance between risk and potential reward through the choice of portfolio holdings.

The Danger of Lacking a Plan

Without a plan, investors often build their portfolios bottom-up, focusing on investments piecemeal rather than on how the portfolio as a whole is serving the objective. Another way to characterize this process is “fund collecting”: These investors are drawn to evaluate a particular fund and if it seems attractive, they buy it, often without thinking about how or where it may fit within the overall allocation.

Investment Policy Statement

Nicolette Financial will manage client investments consistent with each client’s investment strategy as outlined in the Investment Policy Statement (IPS).

The Investment Policy Statement defines your portfolio objectives and directs the investment choices best fit to achieve your financial goals.  Portfolio categories are as follows:

Aggressive Growth

• Appropriate for investors with long-term investment horizons, a substantial risk tolerance for market volatility and no need for current income.
• Intended to provide portfolio appreciation by investing primarily in equity securities.

Growth

• Appropriate for investors with long-term investment horizons, a high risk tolerance for market volatility and little need for current income.
• Intended to provide a blend of portfolio appreciation and modest income by investing primarily in equity securities with a moderate exposure to fixed income.

Balanced

• Appropriate for investors who desire current income and have a moderate tolerance for market volatility.
• Intended to provide a blend of current income and portfolio appreciation by investing in a balanced mix of fixed income securities and equities.

Conservative

• Appropriate for investors who desire current income and have a modest tolerance for market volatility.
• Intended to provide current income by investing primarily in high quality fixed income securities.

Stable

• Appropriate for investors who desire current income and have a minimal tolerance for market fluctuations.
• Intended to provide stability of principal by investing primarily in high quality fixed income securities.

 

Nicolette Financial will not take custody of client assets at any time. Nicolette Financial will be restricted to the powers outlined as “Limited Agent Authority” as specified in the Vanguard Agent Authorization Form. Nicolette Financial will obtain approval from the client prior to execution of any trade.

Fund Selection & Monitoring