The value of an Investment Policy Statement (IPS)

[corn18]

My RSU's vested and thanks to this forum, I can invest all of it vs. paying off CC and car loans. In the past, I would agonize over which fund to buy or when to put it in, lump sum or dollar cost average (DCA), etc... Now that I am a boglehead, I have an Investment Policy Statement (IPS) and it states:

RSU's: When RSU's vest, sell immediately and invest the money in a lump sum in accordance with my Asset Allocation (AA) in my taxable retirement account.

My AA is 60/40 with 25% of stocks in international.

So I put all the RSU money into FIDELITY TOTAL MKT INDEX PREMIUM CLASS (FSTVX) in one lump sum yesterday. Then I moved some of my 401k S&P 500 fund over to bonds to keep my AA at 60/40. Also had to shift some S&P 500 Index funds to International Index in my 401k to keep my 25% international.

No muss, no fuss, no worries. I thought about keeping the RSU's on the sideline until another market dip, but only for a moment.

Also funded our 2 TIRA's and ready to do the backdoor Roth next week. That will all go into FSTVX as well.

Also topped off the EF.

Being a boglehead is not for everyone, but it works for me as it keeps all emotion out of my investing.

Live long and prosper.

Corn

[james.hendrickson]

Corn, Can you tell us more about your personal ISP? I would love to know how you went about developing it and what went into it.

[corn18]

Corn, Can you tell us more about your personal ISP? I would love to know how you went about developing it and what went into it.

This is a good wiki on how to do an IPS:

https://www.bogleheads.org/wiki/Investment_policy_statement

This is the first part of mine:

Objective: $XM in savings by age 55.

Asset Allocation: 60/40 with 25% international

Invest in very low cost index funds

I have lots of details on what to do with 401k, bonus, RSU, mortgage, life insurance, my pension, Roths.

Having all of this written down really helps me stay on track and not think about it in the moment. When 6 figures hits the bank account from RSU's or bonus, I rely on the IPS to keep me from doing something stupid.

[snafu]

I really like your IPS. I don't believe in market timing BUT I'm due to add a contribution the last of February - early March. I'm fighting with myself over Bond adjustment. I know interest rates are scheduled to increase shortly, making my Bond holdings drop like a rock. The world won't end if I keep the Annual contribution in MM an extra week or two.

[corn18]

Here's my entire IPS as written now. It is a living document.

Objective: $X.XM in savings by age 55.

Asset Allocation: 60/40 with 25% international

Invest in very low cost index funds

Do backdoor Roth for myself and wife annually ($6500 me, $5500 wife). Leave in cash in traditional IRA while waiting to roll over to Roth. Wait one week to do roll over to Roth to allow funds to clear. Once in Roth, lump sum investment into total stock market index fund. Funds for backdoor Roths will come from RSU sale, bonus or pension.

Invest maximum allowed in 401k ($24,500) at a rate that maximizes company match. Use 401k to manage 60/40 AA. Invest only in low cost index funds where possible in 401k.

Invest maximum allowed in 401k after tax and do a mega backdoor Roth annually. Lump sum investment into total stock market index fund.

Invest 5% of annual salary allowed into non qualified deferred compensation plan (NDCP) in order to get the company match.

Minimize current taxes by investing only in total stock and international stock index funds in taxable account. Tax free muni bonds up to $50k is also allowed in the taxable account.

Minimize future taxes by concentrating bonds in 401k. Maximize growth in Roth accounts by investing in total stock market index funds.

RSUs: When RSU's vest, sell immediately and invest the money in a lump sum in accordance with my Asset Allocation (AA) in my taxable retirement account.

Bonus: Invest entire bonus each year in a lump sum in accordance with my Asset Allocation (AA) in my taxable retirement account.

Invest a minimum of $75k annually in taxable account. Lump sum investment into total market, total international market or tax free muni's to manage AA. This can be met by RSU, bonus or pension.

Military Pension: Cash savings to be used to refill EF, if required, or save for new car, home repair, etc. If not required for any of these functions by Feb of each year, then invest any amount over $30k in a lump sum into taxable account in accordance with AA.

Mortgage: do not prepay mortgage

Life Ins: Maintain multiple term life policies laddered until age 78. As savings becomes sufficient to maintain DW current lifestyle with low risk, policies will be allowed to end without renewal.

[Thrif-t]

What's RSU???

[Jluke]

Restricted Stock Units...

come on Corn18 - you know the bogleheads hate acronyms that aren't spelled out... they have threads complaining about it.

[corn18]

Restricted Stock Units...

come on Corn18 - you know the bogleheads hate acronyms that aren't spelled out... they have threads complaining about it.

They are having quite the todo over there about acronyms.

[SavingSteve]

I understand minimizing taxes by holding stocks in taxable accounts, but I don't really understand this other statement made in corn's ISP. Can anyone help me understand this?

Minimize future taxes by concentrating bonds in 401k.

[corn18]

I understand minimizing taxes by holding stocks in taxable accounts, but I don't really understand this other statement made in corn's ISP. Can anyone help me understand this?

I would rather have my Roth’s grow the most as all of that is tax free. Then I want my taxable to grow second most as all of that is taxed as capital gains. 401k growth is my last choice as it will get taxed as regular income.