According to Manisha Thakor, director of wealth strategies for women at Buckingham and the BAM Alliance, "individuals who had a clear, concise and documented investment plan were least likely to have knee-jerk, counterproductive reactions to market volatility."
An investment policy statement should address five points:
• "Your target asset allocations for stocks, bonds and hard assets."
•"Your trigger points for rebalancing (for example, moves of plus or minus 5% for major asset classes, and plus or minus 25% for subclasses)."
• "Clarity about where cash flows will come from to fund daily living expenses, which helps reduce fear when portfolio values decrease."
• "An understanding of your willingness, ability and need to take risk so you understand why you are subjecting yourself to this volatility."
Source: The Wall Street Journal, January 11, 2016, R11.