Creating a Personal Investment Statement (How & Why)

If you’ve ever felt anxious about what to do when the market dips – or tempted to chase the latest “hot” stock – you’re not alone. Investing can stir up all kinds of emotions. That’s why one of the smartest steps you can take, ASAP, is to craft a Personal Investment Statement.

It’s not complicated, or just for professionals – your investment statement simply documents your current plan. Putting your strategy in writing is a powerful way to stay grounded, focused, and aligned with your long-term financial goals.

What Is a Personal Investment Statement?

A Personal Investment Statement is your investing blueprint.

It outlines:

Why you’re investing
How much risk you’re comfortable taking
The types of investments you’ll hold and in what proportion
What you’ll consider when deciding whether to buy or sell a position
How often you’ll review your portfolio
Your rules, guidelines, and boundaries (things you want to remember to do, or avoid doing)
Commitment – formally agreeing to stick to the plan

Think of it as your investing compass – a simple document that keeps you from drifting off course when markets become volatile or emotions become intense.

See your statement as a living document, a first draft – something you’ll add to and modify over time. It doesn’t need to be perfect (and it never will be). Your personal investment strategies will grow with you, as you become a more seasoned investor.

What it does need to do, right away, is help you ignore the hype and avoid rash decisions, while reminding you to stay focused on the distant future and big picture.

For most investors: 99% of good investing is doing nothing,
the other 1% is how you behave when the world is going crazy.
Morgan Housel

Why You Need One

Here’s what makes an investment agreement so powerful…

They:

1. keep you calm when markets are chaotic.

Instead of swinging from fear to greed and back, you’ll wait patiently for your next move – because you have outlined a clear path forward.

2. spell out your goals

“Saving for the future” becomes “Building $500,000 in retirement savings before my 60th birthday.”

Greater specificity offers direction and motivation.

3. Help you stay consistent

Once you’ve defined your target mix of investments, you’re less likely to second-guess yourself or chase the latest, “greatest” trends.

4. make progress measurable

You’ll check in annually to confirm you’re progressing toward your goals.

5. Keep you focused on what’s within your control

You have no control over (nor should you try to predict) short-term market fluctuations.

A Personal Investment Statement lets you turn off and tune out the doomsayers (worrywarts, alarmists, sensationalists), directing your attention toward those places where your actions will have the greatest impact (increasing your savings rate, long-term planning, and maintaining an appropriate amount of diversification).

Let’s get started!

Items to Include

No need to overthink it – grab a pencil and paper (or word document), and start jotting things down…

Here’s an outline to guide you:

1. Your Investment Goals

Think SMARTER! Whenever possible use goals that are Specific, Measurable, Attainable, Relevant, and Time-bound. Then, occasionally, Evaluate and Readjust.

Turn “Save 20%” into – Contribute 14% per year to my employee 401(k) and 6% to my brokerage account, in order to reach financial independence at 58.
Turn “Pay for college” into – Set aside $10,000 each year, to save $100,000 (plus any interest accrued) for my child’s higher education by 2036.

2. Your Risk Tolerance

Define how much volatility you can handle before you start to worry.

Can you tolerate a 15 – 20% temporary loss before you feel compelled to sell?
Or, would you rather take an approach that smooths out a large portion of the market’s natural swings, dips, corrections, and crashes?

3. Your Target Asset Allocation

Spell out your mix of funds, stocks, and cash equivalents.

An example of this would be:

80% index ETFs (Exchange-Traded Fund)
10% other ETFs
5% individual companies
5% cash & cash equivalents

Add guardrails when helpful

Never hold more than eight individual companies
Don’t put more than 5% in a single sector, industry
Avoid any form of heavy concentration (which introduces too much risk)

Don’t forget to add boundaries on both sides

Hold no more than 6 different ETFs at any given time
Avoid excessive diversification (which may dilute returns)

There’s no use diversifying into unknown companies just for the sake of diversity. A foolish diversity is the hobgoblin of small investors.
Peter Lynch (*coined the term diworsification)

4. Investment Guidelines & Best Practices

Spell out what fits – and what doesn’t.

How much will you invest?

20% of all earned income

How often?

On the first of every month (Dollar-Cost Averaging) into my brokerage account
Every paycheck (through deductions) into my employee 401(k)
Annually (in December or April), into my IRA

What will you buy?

Nearly exclusively low-cost, diversified ETFs
Positions you’re willing to hold for more than a year (to avoid unwanted or unexpected short-term gains)

What will you avoid buying?

Speculative stocks
Hyped “hot” stocks
Overly complex (and therefore difficult to assess) assets
Extremely volatile alternatives (that will keep me up at night)
Fair-weather friends (stocks I’d second-guess in a downturn)

Don’t forget to address gray areas.

When I’m not sure what to do, I won’t do anything!

The stock market is a device to transfer money
from the impatient to the patient.
Warren Buffett

5. Your (Re)balancing Strategy

Decide when (and how) you’ll rebalance to maintain your target allocation over time. Some choose to rebalance annually, or whenever a position or area shifts by a certain percentage.

I strive to “rebalance” on the way in, to avoid unnecessary selling…

Temporarily stop buying positions in areas that have exceeded their desired proportion (per the previously outlined allocation)
Add extra to those areas that have become smaller than ideal

6. Periodic Review

I recommend going over (and potentially adapting) your personal investment guidelines each year.

I will review my Investment Statement each January.

Consider adding exceptions, times you’ll look it over sooner.

I’ll double check my Investment Statement if any of the following major life events occur…

Among other things, a new addition to the family, the loss of a loved one, career shifts, or changes in marital status might warrant assessment and potential updates. Bear in mind that even substantial life events won’t have an impact unless they directly affect your financial goals.

7. Declaration of Commitment

Sign your statement! This will remind you that these are rules, not recommendations. Even though you’re reserving the right to modify your strategy in the future, you’ll want to fully commit to the current plan.

Remember, in investing, the “no plan” plan is dangerous. It leaves the door open to knee-jerk reactions and sudden shifts that tend to become extremely costly in the long run.

The Bottom Line

A Personal Investment Statement is your financial anchor. It’ll help you tune out the noise, stay disciplined, and make choices that reflect long-term priorities, rather than your short-term emotions.

By formalizing your strategies, putting your thoughts, concerns, and goals into writing, you’ve committed to invest with intention and avoid impulsivity – and that’s a great way to begin building wealth!

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