What purpose does an Investment Policy Statement (IPS) serve?

An Investment Policy Statement (IPS) serves a crucial role in guiding an investor's decision-making process. It outlines the investor's goals, risk tolerance, asset allocation strategy, and specific investment guidelines. By articulating these components, the IPS helps maintain a clear focus on the investor's objectives and provides a framework for making investment decisions. This ensures consistency in management, particularly during times of market volatility when emotional decision-making can lead to deviations from a long-term strategy.

Having a written document to refer to helps enforce discipline, as it encourages individuals to stick to their predefined strategies rather than reacting impulsively to market conditions. Additionally, an IPS can facilitate communication with financial advisors by establishing clear expectations and guidelines for portfolio management.

The other options describe elements or documents that are not the primary function of an IPS. While maintaining a record of past investment decisions is important, it does not capture the forward-looking perspective of setting goals and strategies. An IPS is not legally required for all investors, and it does not involve the provision of daily market analysis, which is generally performed by analysts or commentary sources rather than being part of the strategic planning outlined in an IPS.