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Retirement Planning: Why You Should Have an Investment Policy Statement

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Do you go into a panic mode every time the stock market falls?

If you have a plan - an investment policy statement -- there's no need to panic when the market declines in value. But if you don't have a plan there's no need to panic either. Instead, your best bet is to make a plan - to draft an investment policy statement or IPS.

An IPS is a document that details how what percent of your portfolio you'll invest in stocks, bonds and cash. The IPS also specifies your time horizon, investment objective, and risk tolerance. But most importantly, the IPS establishes when you will sell and when you buy. And it's based on rules not on emotion. In essence, you'll never worry about market declines - no matter how steep or frequent -- again.

Two good resources to learn more about investment policy statements are the CFA Institute's Elements of an Investment Policy Statement for Individual Investors and Morningstar's Creating Your Investment Policy Statement

Want to learn more about investment policy statements, get more information and sign up for a free trial subscription to TheStreet's Retirement Daily

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