Why I Keep a Written Investment Policy

Institutions write an investment policy statement before deploying capital. It sets objectives, constraints and rules, and it exists so that decisions are made once, in advance, rather than repeatedly under pressure.

I have kept one for my own holdings since 2021. It is a single page.

What is on it

Objective. What this money is for and over what horizon. Mine says a decade, with no expectation of drawing on it sooner.

Maximum position size. Each asset as a share of investable assets, with a band around the target.

Rebalancing rule. Quarterly, on a date, back to target when outside the band.

Contribution rule. Fixed amount, fixed date, regardless of price.

Invalidation conditions. What would have to be true for me to exit entirely. Three specific, checkable items per position.

Liquidity floor. How much must be held outside volatile assets at all times.

What I will not do. No leverage. No assets I cannot describe in two sentences. No decisions made after 9pm.

The amendment rule

This is the part that makes it work.

The policy may only be changed in a month when nothing dramatic is happening, and changes take effect the following quarter.

Without that rule, the policy becomes a document I edit whenever it disagrees with me, which is the same as not having one.

What it has actually done

Prevented an exit in month three of a drawdown. I opened the document, found the invalidation conditions, checked them against evidence, and none had occurred. The decline was not on the list because a price falling was never a reason to think the thesis had changed.

I followed my own instruction. It was not satisfying. It was correct.

Forced a rebalance I did not want to make. Late in a strong advance, the position was above its band. Trimming into strength felt like leaving money on the table. The rule did not care, and the proceeds were available when the decline arrived.

Caused one exit. A position where an invalidation condition was met and had been met for two quarters while I answered the question from memory rather than from data. The document was fine; my compliance with it was not.

The failure I have not solved

I check the conditions quarterly. Twice I have checked them from impression rather than by pulling the numbers, and both times the impression was wrong.

The review now requires writing the actual figures next to each condition. Fifteen minutes instead of five.

The practical detail

Execution has to be possible when the rule fires. A rebalance that requires retrieving a device from a drawer and remembering a passphrase will get deferred, and a deferred rebalance is a skipped one.

So the working balance sits at the exchange I have used since 2021, sized to cover a typical quarterly adjustment, and cold storage is touched only when the adjustment is unusually large.

Friction is useful for preventing impulsive trades and harmful for preventing scheduled ones. The arrangement has to distinguish between them.