Creating an Investment Policy Statement (IPS)
An IPS is a personal document that guides your investments. Learn how to create one and why it's so important.
Note: This article discusses Indonesian financial products and markets. The principles apply globally, though specific products, regulations, and tax treatments vary by country.
Creating an Investment Policy Statement (IPS)
An Investment Policy Statement (IPS) is a written document that explains why, how, and how much you invest. It’s not an official document that needs to be reported to anyone — it’s a promise to yourself.
Why does this matter? Because when the market drops 30% and you’re panicking, your IPS is what reminds you to stay calm and follow the plan.
Why Do You Need an IPS?
Without a written plan, your investment decisions will be influenced by:
- Emotions: panic when markets fall, euphoria when markets rise
- Social media: FOMO from seeing others profit from certain stocks
- News: overreacting to daily economic headlines
- Cognitive biases: overconfidence, recency bias, loss aversion
An IPS helps you make decisions when your mind is clear (now), not when you’re emotional (during a crisis).
Studies show that investors with written plans consistently achieve better returns — not because they pick smarter investments, but because they don’t panic and sell at the wrong time.
What’s in an IPS?
An IPS doesn’t need to be long or complicated. One page is enough. Here are the main elements:
1. Investment Goals
Write them specifically:
| ❌ Too Vague | ✅ Specific |
|---|---|
| ”I want to be rich" | "I want to have Rp 5 billion when I retire at age 55" |
| "For the future" | "Rp 500 million education fund for my child in 15 years" |
| "Passive income" | "Rp 10 million per month from my portfolio starting at age 55” |
You can have multiple goals. Separate each one clearly.
💡 Determine your retirement fund target: Use our Retirement Calculator to calculate the specific amount you need for retirement — don’t just write “rich” or “enough.” The calculator will help you determine a realistic target.
2. Time Horizon
| Goal | Time Horizon | Implications |
|---|---|---|
| Emergency fund | Anytime | Money market funds |
| House down payment | 2-3 years | Money market / bond funds |
| Child’s education fund | 10-18 years | Mix of stocks + bonds |
| Retirement | 20-30 years | Majority stocks |
The longer your time horizon, the larger the stock allocation you can take — because you have time to recover from market downturns.
3. Risk Tolerance
Answer this question honestly:
If your portfolio dropped 30% in a year (e.g., Rp 100 million becomes Rp 70 million), what would you do?
- A: Sell everything → You need a conservative allocation
- B: Worried but don’t sell → You can handle a moderate allocation
- C: Keep investing regularly, even add more → You can handle an aggressive allocation
This isn’t about right or wrong. It’s about knowing yourself. The best allocation is one you can stick with when markets crash.
4. Asset Allocation
Based on your time horizon and risk tolerance, determine the percentage for each asset class:
| Profile | Stocks (Index Funds) | Bonds/SBN | Money Market |
|---|---|---|---|
| Conservative | 30% | 50% | 20% |
| Moderate | 60% | 30% | 10% |
| Aggressive | 80% | 15% | 5% |
And for geographic exposure:
| Stock Component | Conservative | Moderate | Aggressive |
|---|---|---|---|
| IHSG (Indonesian Stock Index) (index funds) | 80% | 70% | 60% |
| Global/S&P 500 | 20% | 30% | 40% |
These are just examples. The “correct” numbers depend on your unique situation.
5. Investment Products
Write down the specific products you’ll use:
| Asset Class | Product | Platform |
|---|---|---|
| Indonesian stocks | Bahana IDX30 / BNP Paribas SRI-KEHATI | Bibit |
| Global stocks | VOO (S&P 500 ETF) | Gotrade |
| Bonds | SBN (Surat Berharga Negara/Government Securities: ORI/SBR/SR/ST) | Bibit/Bareksa |
| Money market | Sucorinvest Money Market Fund | Bibit |
6. Investment Schedule
| Frequency | Amount | Date |
|---|---|---|
| Monthly | Rp 2,000,000 | 1st of every month |
| SBN | As offered | During offering period (check OJK calendar) |
Use the auto-invest feature on your platform for consistency.
7. Rebalancing Rules
Determine when you’ll rebalance your portfolio:
- Time-based rebalancing: every 6 or 12 months
- Threshold-based rebalancing: if allocation deviates more than 5-10% from target
Example: if your target is 60% stocks / 40% bonds, and due to stock gains it’s now 70% / 30%, you sell some stocks and buy bonds to return to 60/40.
8. “Don’t Do” Rules
This is the most important part. Write down things you will not do:
- ❌ Will not sell when markets drop more than 20%
- ❌ Will not trade individual stocks
- ❌ Will not change allocation based on news or market predictions
- ❌ Will not buy investment products I don’t understand
- ❌ Will not follow finfluencer recommendations
- ❌ Will not check portfolio more than once a month
Sample Simple IPS
Here’s a one-page IPS example:
IPS — [Your Name] — February 2026
Goal: Build a retirement fund of Rp 5 billion by age 55 (year 2051, 25 years from now).
Risk tolerance: Moderate-aggressive. I can accept 30-40% declines in the short term because my time horizon is still long.
Asset allocation:
- 60% Indonesian stock index fund (Bahana IDX30)
- 20% S&P 500 ETF (VOO via Gotrade)
- 10% SBN (buy during offering periods)
- 10% money market fund (emergency fund)
Regular investment: Rp 3,000,000 per month, on the 1st, auto-invest.
Rebalancing: Every 12 months (January) or if allocation deviates >10%.
Rules:
- Don’t sell when markets fall
- Don’t trade individual stocks
- Don’t change the plan without annual review
- Review IPS every January
When to Change Your IPS?
An IPS isn’t locked forever. You can and should change it if:
- Life situation changes: marriage, having children, job loss, large inheritance
- Time horizon changes: approaching retirement, goals change
- Risk tolerance changes: after real experience (not just theory)
What is not a reason to change your IPS:
- Markets are falling
- Markets are rising
- A friend profited from crypto
- A finfluencer says you should switch to stock X
Common IPS Mistakes to Avoid
Many investors create an IPS but fail to make it effective. Here are the most common mistakes:
Mistake 1: Being Too Aggressive on Paper
It’s easy to write “I can handle 40% declines” when markets are calm. Reality tests this during crashes. The 2020 COVID crash saw Indonesian stocks drop 38% in weeks. Did you actually keep buying, or did you panic?
Solution: Base your risk tolerance on actual experience. If you’ve never lived through a bear market, start conservative and adjust upward only after experiencing real volatility without panic-selling.
Mistake 2: Too Many Goals in One Portfolio
Mixing short-term goals (house down payment in 2 years) with long-term goals (retirement in 30 years) in the same portfolio creates allocation conflicts. A 2-year goal needs stability (money market funds), while a 30-year goal needs growth (stocks).
Solution: Separate portfolios for different time horizons. Use your broker’s sub-account feature or mentally partition your holdings. Your IPS should clearly map which investments fund which goals.
Mistake 3: Overly Complex Asset Allocation
Some investors create elaborate allocations with 10+ asset classes: Indonesian large-caps, small-caps, global developed, emerging markets, corporate bonds, government bonds, commodities, REITs, gold, crypto… The complexity makes rebalancing impractical and introduces decision paralysis.
Solution: Start with 3-4 asset classes maximum. Indonesian stocks, global stocks, bonds, cash. You can add complexity later once you’ve mastered the basics and actually rebalanced successfully for multiple years.
Mistake 4: No Behavioral Rules
An IPS that only lists allocations and products but doesn’t address your specific behavioral weaknesses is incomplete. If you’re prone to checking prices daily and panic-selling, your IPS needs explicit rules against this.
Solution: Include a “Behavioral Guardrails” section listing your specific psychological vulnerabilities and corresponding rules. Examples: “I tend to panic during crashes → I will not check my portfolio more than monthly” or “I chase performance → I will not invest in last year’s top-performing fund.”
The Psychological Power of a Written IPS
Beyond the practical benefits, having a written IPS provides significant psychological advantages during market turbulence:
It Externalizes Decision-Making
When markets crash 30%, your emotional brain takes over. Fear, stress hormones, and survival instincts make rational analysis nearly impossible. Your IPS acts as an external “pre-commitment device” — a decision made by your rational self that your emotional self must follow.
This concept comes from behavioral economics: Ulysses binding himself to the mast so he could hear the Sirens’ song without steering his ship to destruction. Your IPS is your mast.
It Reduces Decision Fatigue
Investment decisions are exhausting: Buy more? Sell? Switch funds? Rebalance? Without an IPS, you face these questions constantly. With an IPS, most decisions are already made. You simply execute the plan.
This frees mental energy for more important life decisions and reduces the temptation to tinker with your portfolio out of boredom or anxiety.
It Provides Emotional Distance During Euphoria
Bull markets are just as dangerous as bear markets for disciplined investing. When markets surge 50% and everyone around you is getting rich on meme stocks or crypto, FOMO (fear of missing out) becomes overwhelming.
Your IPS reminds you that chasing performance violates your plan. It gives you permission to ignore the noise and stick to your boring index fund strategy while others gamble.
Annual IPS Review Process
Your IPS isn’t “set and forget.” Schedule an annual review every January using this checklist:
Life Changes Assessment
- Has your income changed significantly (>20% increase or decrease)?
- Has your family situation changed (marriage, divorce, new children)?
- Has your health changed (chronic illness, disability)?
- Has your employment stability changed (career risk increased or decreased)?
If yes to any, reconsider your risk tolerance and investment capacity.
Goal Progress Review
- Are you on track to meet your goals given current portfolio value and contributions?
- Do any goals need adjustment (timeline extended, target increased)?
- Have any goals been achieved and can be removed?
Run your numbers through the retirement calculator again to verify progress.
Allocation Drift Check
- What is your current actual allocation?
- How much has it drifted from target?
- If >10% deviation, you need to rebalance.
Market Experience Reflection
- How did you feel during the past year’s market movements?
- Did you follow your IPS rules, or did you violate them?
- If you violated rules, was it justified or emotional?
This honest reflection helps you calibrate your actual risk tolerance versus what you thought it was.
Strategy Validation
- Are the products you’re using still appropriate (fees, performance, availability)?
- Has your investment knowledge increased enough to consider adding complexity?
- Are there new, superior options available (better index funds, lower fees)?
Only make changes if there’s a clear improvement, not just because something is new or fashionable.
Summary
| IPS Element | Question Answered |
|---|---|
| Goals | What am I investing for? |
| Time horizon | When do I need this money? |
| Risk tolerance | How much decline can I accept? |
| Asset allocation | What percentage in stocks, bonds, money market? |
| Products | Which funds do I buy? |
| Schedule | How much and when do I invest? |
| Rebalancing | When do I rebalance my portfolio? |
| ”Don’t” rules | What will I not do? |
Take 30 minutes today to write your IPS. Print it and post it somewhere visible. When markets crash and you want to panic — read it again. That’s what it’s for.
Disclaimer: This article is for educational purposes only, not investment advice.