What is the purpose of an investment policy statement (IPS)?

The purpose of an investment policy statement (IPS) is fundamentally to outline an investor's goals, risk tolerance, and strategies. An IPS serves as a formal document that articulates the investor's specific objectives, which can include target returns, investment time horizon, and liquidity needs. Additionally, it outlines the investor's risk tolerance, helping to define the levels of volatility and potential loss the investor is willing to accept in pursuit of their goals.

This document is essential for providing a clear framework for making investment decisions and for guiding the investment management process. It ensures that the investment strategy aligns with the investor's financial situation and personal objectives, effectively acting as a roadmap for both the investor and any advisors involved.

The other options do not accurately reflect the primary purpose of an IPS. Documenting market trends and forecasts is more about analyzing the broader market context rather than focusing on individual investment strategies. Tracking portfolio performance is a function of monitoring portfolios and does not speak to outlining objectives and strategies. Providing a guide for economic growth is a much wider objective than what the IPS is intended for, as it focuses specifically on personal or institutional investment strategies rather than overarching economic policies.