My Investment Policy Statement

I wrote my investment policy statement to make every decision based on the long term goals. The process helped me to think what I truly want, how to turn them into financial goals, and how to achieve the goals. I suggest every investor to write their own. Here’s mine:

Investment Objectives

Have a $1.5 Million saved in financial accounts by Jan 1, 2029 for early retirement.

  • After retirement, I plan to sell my home in SF Bay Area and move to an area with a lower cost of living. Replacing my house to a cheaper one will add $0.5 Million to the retirement fund.

  • Assuming annual withdrawal rate of 4%, the $2.0 Million will provide a retirement income of $80,000 per year in today’s dollars accounting inflation rate of 3%.


Investment Principles

Anyone can get rich by staying the course for the long term. I have the investment principles that I use for day-to-day decisions.

Saving Plan

  1. Save 50% of income

  2. Max out all retirement accounts first

  3. Invest any left money into home equity (mortgage principal) and taxable accounts

    • I have a mortgage with 3.99% of annual percentage rate. From investment point of view, this is a bond with 3.99% of annual percentage yield.


Accounts

Invest the annual saving in the following priority:

  1. Traditional 401K - 2019 limit is $19,000 for employee.

  2. HSA - 2019 limit is $7,000.

  3. Mega Backdoor Roth 401K - 2019 limit is $31,900.

  4. Backdoor Roth IRA - 2019 limit is $6,000. For me and my spouse, total $12,000.

  5. Taxable accounts - $10,000

  6. Home equity - $20,100 + any excess saving



TARGET Allocation

In near term, US Stocks 90%, US Bonds 10%

  • S&P 500 and Total Stock Market Index Fund > 85% - Traditional 401K, Roth 401K, and Roth IRA, HSA

  • Taxable bond funds 5% - Traditional 401

  • Individual stocks < 5% - Taxable accounts

  • Municipal bonds 5% - Taxable accounts

The target allocation will be adjusted every year as I approach to the target retirement age.