Triggers for revising IPS?

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AerialWombat
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Triggers for revising IPS?

Post by AerialWombat »

It's been about 3.5 years since I wrote my IPS, a few months after joining Bogleheads. I have made no modifications to it since then.

I haven't even looked at it in a while, since most of my investments are on auto-pilot now. But looking at it just now made me realize that it was "off". I recently had a business liquidity event, had massive appreciation in rental properties, am sitting on significant crypto gains (not part of IPS), am about to have a minor liquidity event in my software company, and just FIREd last month at age 43.

So I'm thinking it's time to revisit my IPS.

I pose thee these questions three:

1). What triggers have caused you to change your IPS?
2). What are the most significant changes you've made to your IPS?
3). What kind of "circuit breakers" do you put in place on IPS changes?

Thank you, Bogleheads! :sharebeer
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
jebmke
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Re: Triggers for revising IPS?

Post by jebmke »

Only changed twice. Once when retirement (early) looked like it was on the horizon - not a specific date but within sight. Second time was when I started my pension.

First time we un-rolled a very large tilt to small-cap value and started targeting all new money to fixed income to start shift to lower equity allocation.

Second time I removed the re-balance point on the upside -- that is, no plans to re-balance out of equity on the upside. Will only re-balance in on the downside.
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Khuzud
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Re: Triggers for revising IPS?

Post by Khuzud »

My IPS contains a clause that says any changes to the IPS will only take effect six months after being put in writing. The IPS is meant to document long term strategy, not flavor-of-the-moment investment fads. If I feel I need to change my IPS for any reason, I’ll make the changes in writing but not actually act on them for six months. After the cooling off period, if I still feel the changes are warranted then I can execute the changes.
KlangFool
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Re: Triggers for revising IPS?

Post by KlangFool »

OP,

Size of my portfolio.

When my portfolio crosses 25X, I decided whenever it goes up by 60K, I would take 30K to pay down my mortgage.

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David Jay
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Re: Triggers for revising IPS?

Post by David Jay »

I have made two major course corrections: One two years before retirement (AA from 100/0 to 60/40) and one two years after retirement (simplification to "single-fund" portfolio for spouse's benefit). Both were "stage-of-life" changes.
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Beensabu
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Re: Triggers for revising IPS?

Post by Beensabu »

I kept changing things, so I threw my IPS away...

Just came up with a rule last year after I finally worked out my AA. It's a silly rule, but it should work fine.

Only able (but not required) to rebalance in a year where the last two digits are a prime number.
Only able (but not required) to change AA in a rebalancing year that ends in a "1".
Only able (but not required) to change how contributions are directed after at least 13 months since the last change.
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quantAndHold
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Re: Triggers for revising IPS?

Post by quantAndHold »

Khuzud wrote: Sat Jan 15, 2022 3:28 pm My IPS contains a clause that says any changes to the IPS will only take effect six months after being put in writing. The IPS is meant to document long term strategy, not flavor-of-the-moment investment fads. If I feel I need to change my IPS for any reason, I’ll make the changes in writing but not actually act on them for six months. After the cooling off period, if I still feel the changes are warranted then I can execute the changes.
This seems reasonable. Mine has a clause that says that I can change it every year on my birthday, but I have to write down the changes I want to make at least 90 days in advance. I have actually made a couple of changes in the last decade, but the changes were a lot less extensive than the things I’ve written up but never implemented.

As far as the Wombat, yeah, with that many financial changes, it’s probably time to revisit.
2pedals
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Re: Triggers for revising IPS?

Post by 2pedals »

After retirement, I converted my IPS into a Retirement Policy Statement (RPS) after reading a post by Boglehead WoodSpinner. I update the RPS every year but I have only changed the IPS section once over the past several years. I think it's important to align your IPS with your overall goals.

Reference:
viewtopic.php?f=2&t=231824&p=4638041&hilit=RPS#p4638041
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grabiner
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Re: Triggers for revising IPS?

Post by grabiner »

Khuzud wrote: Sat Jan 15, 2022 3:28 pm My IPS contains a clause that says any changes to the IPS will only take effect six months after being put in writing. The IPS is meant to document long term strategy, not flavor-of-the-moment investment fads. If I feel I need to change my IPS for any reason, I’ll make the changes in writing but not actually act on them for six months. After the cooling off period, if I still feel the changes are warranted then I can execute the changes.
Similarly, here's the last paragraph of mine, which also answers the OP's question.

"This statement will be reviewed whenever there is a substantial change in my financial situation, and annually when I rebalance. If there is no substantial change in my financial situation, I will wait at least three months between changing the asset allocation in my statement and changing the asset allocation of my investments, and review the change in the statement at that time."

Two examples of triggers:

In 2013, I bought a condo. This created a major change in my financial situation (as I now owned a place to live, but was committed to 15 years of mortgage payments), so I revised the IPS and my asset allocation at the same time.

In 2015, I decided to start increasing my bond allocation by 2% per year as retirement became closer, and set a glidepath. I made the decision at the January 2015 annual review, then confirmed it by selling stock to buy bonds in April 2015. In subsequent years, I make the 2% adjustment in January, as I have already made the decision in my IPS.
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Doc7
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Re: Triggers for revising IPS?

Post by Doc7 »

KlangFool wrote: Sat Jan 15, 2022 3:28 pm OP,

Size of my portfolio.

When my portfolio crosses 25X, I decided whenever it goes up by 60K, I would take 30K to pay down my mortgage.

KlangFool
KlangFool,
Maybe a discussion for another thread, but would this $30K come from taxable investments, Roth IRA contributions, or another source? I’ve been thinking lots on taxable investments and “bridging” retirement lately, with hopes of retiring in 20 years at 56. When PMI came off mortgage, rather than invest that difference in my wife’s 401k which has room before max out, I began purchasing total stock market ETF in a brokerage account. We are saving over 25% of gross income and 31% with matches included. I thought I would limit my taxable investment to 10% of that or 2.5% of gross income.
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grabiner
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Re: Triggers for revising IPS?

Post by grabiner »

KlangFool wrote: Sat Jan 15, 2022 3:28 pm Size of my portfolio.

When my portfolio crosses 25X, I decided whenever it goes up by 60K, I would take 30K to pay down my mortgage.
Do you view this as a trigger for revising the IPS? I had a condition for paying down my mortgage, but this wasn't a trigger for revising the IPS; rather, it was a decision that I had made years before, and wrote down in the IPS. Thus, when I met the condition in 2020, I paid off the mortgage immediately (and revised the IPS only because I no longer needed to refer to the mortgage).
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Normchad
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Re: Triggers for revising IPS?

Post by Normchad »

I’d say it only needs to change if your life circumstances change. Birth, death, divorce, windfall, etc.

Of course, it’s never a bad time to look at it, and reconfirm that it still makes sense for you.

My dirty little secret: I don’t have an IPS.
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Wiggums
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Re: Triggers for revising IPS?

Post by Wiggums »

Our IPS changed at retirement to change out AA to 65/35. Prior to this, we had no bonds, but we did hold some cash and paid off 5.25% home mortgage. Whenever there is a significant change in your finances, that is a good time to step back and re-validate your approach.
"I started with nothing and I still have most of it left."
KlangFool
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Re: Triggers for revising IPS?

Post by KlangFool »

Doc7 wrote: Sun Jan 16, 2022 5:59 pm
KlangFool wrote: Sat Jan 15, 2022 3:28 pm OP,

Size of my portfolio.

When my portfolio crosses 25X, I decided whenever it goes up by 60K, I would take 30K to pay down my mortgage.

KlangFool
KlangFool,
Maybe a discussion for another thread, but would this $30K come from taxable investments, Roth IRA contributions, or another source? I’ve been thinking lots on taxable investments and “bridging” retirement lately, with hopes of retiring in 20 years at 56. When PMI came off mortgage, rather than invest that difference in my wife’s 401k which has room before max out, I began purchasing total stock market ETF in a brokerage account. We are saving over 25% of gross income and 31% with matches included. I thought I would limit my taxable investment to 10% of that or 2.5% of gross income.
Doc7,

Your thought process is wrong. You should max up all your tax-advantaged accounts before investing in the taxable account.

Please check out the following URL.

https://www.madfientist.com/how-to-acce ... nds-early/

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Re: Triggers for revising IPS?

Post by KlangFool »

grabiner wrote: Sun Jan 16, 2022 6:09 pm
KlangFool wrote: Sat Jan 15, 2022 3:28 pm Size of my portfolio.

When my portfolio crosses 25X, I decided whenever it goes up by 60K, I would take 30K to pay down my mortgage.
Do you view this as a trigger for revising the IPS? I had a condition for paying down my mortgage, but this wasn't a trigger for revising the IPS; rather, it was a decision that I had made years before, and wrote down in the IPS. Thus, when I met the condition in 2020, I paid off the mortgage immediately (and revised the IPS only because I no longer needed to refer to the mortgage).
That is my FI number. I do not think of what I should do after hitting my FI number in my IPS.

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Re: Triggers for revising IPS?

Post by DIYtrixie »

I wrote an IPS shortly after I found Bogleheads. I included increased percentage in bonds (“glide path”) as we got closer to our hoped-for retirement age. Flash forward through a few years of fantastic stock market performance — we’re now in sight of our FI number a few years before our anticipated RE age. Which made me realize our AA is now too high: As we get closer to the FI number, I’m losing my appetite to wait out market downturns in order to make it to the FI number.

I read a lot here about using an AA with a set number of years worth of expenses in bonds, as a multiple of total portfolio. This approach seems much more grounded in our reality than an age-based bonds percentage ever did.
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Re: Triggers for revising IPS?

Post by AerialWombat »

Thanks so much for all of your replies. These are helpful in determining what things to think about changing and what to leave alone.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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David Jay
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Re: Triggers for revising IPS?

Post by David Jay »

AerialWombat wrote: Mon Jan 17, 2022 3:05 pmThese are helpful in determining what things to think about changing and what to leave alone.
Quick summary: "Stage of Life" changes are appropriate.
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Re: Triggers for revising IPS?

Post by pasadena »

I have revised mine a few times.

First of all, like a lot of people who replied before me, every change has a 3-month "cooling period". When I'm done thinking it through, I write it down in a separate document ("proposed IPS changes"), and wait at least 3 months before I actually update the IPS and take action.

- The first big revision was in 2018 when I changed jobs and gained access to self-directed 401(k) (BrokerageLink at Fidelity) and mega backdoor Roth. I also realized at that time that my IPS was too detailed, so I took the opportunity to simplify it, remove specific account information, and use more generic terms ("Total Stock Market Index Fund" instead of "VTSAX"). If I need more details, I can always write a separate document for that ("Detailed Investment Plan").

- The second one was during the COVID crisis, when I realized my cash emergency fund was too small for comfort during bad times.

- The third one was last year, when I decided to get rid of my buckets, that had different asset allocations ("retirement" and "non-retirement") as my goals had changed a bit since I set everything up 5 years ago. I rewrote the whole thing with one AA across all accounts.
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Re: Triggers for revising IPS?

Post by hudson »

AerialWombat wrote: Sat Jan 15, 2022 3:00 pm It's been about 3.5 years since I wrote my IPS, a few months after joining Bogleheads. I have made no modifications to it since then.

I haven't even looked at it in a while, since most of my investments are on auto-pilot now. But looking at it just now made me realize that it was "off". I recently had a business liquidity event, had massive appreciation in rental properties, am sitting on significant crypto gains (not part of IPS), am about to have a minor liquidity event in my software company, and just FIREd last month at age 43.

So I'm thinking it's time to revisit my IPS.

I pose thee these questions three:

1). What triggers have caused you to change your IPS?
2). What are the most significant changes you've made to your IPS?
3). What kind of "circuit breakers" do you put in place on IPS changes?

Thank you, Bogleheads! :sharebeer
Triggers causing me to change? 2008 nosedive...moved to 100% fixed
Significant changes? move from brave soldier to chicken little :)
Circuit breakers? I don't have any but when CDs mature, I may go all in with TIPS
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Re: Triggers for revising IPS?

Post by Horton »

Within the last year, I adopted a one-line IPS that should put everything on autopilot for my family until I retire, at which time I will either continue using TDFs or, perhaps, switch to an all-in-one fund with a static asset allocation.
80% global equities (faith-based tilt) + 20% TIPS (LDI)
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Re: Triggers for revising IPS?

Post by michaelingp »

Khuzud wrote: Sat Jan 15, 2022 3:28 pm My IPS contains a clause that says any changes to the IPS will only take effect six months after being put in writing. The IPS is meant to document long term strategy, not flavor-of-the-moment investment fads. If I feel I need to change my IPS for any reason, I’ll make the changes in writing but not actually act on them for six months. After the cooling off period, if I still feel the changes are warranted then I can execute the changes.
Great advice! Just curious, how often (i.e. percentage-wise), after the 90 day cooling off period do you execute, versus discard?
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Re: Triggers for revising IPS?

Post by FishinGeek »

Perhaps a little off topic…
Initially I wrote our IPS for myself, which tended to be a little sterile, shorthanded and in “my speak”. Our IPS has been in a steady state for many years, but I recently rewrote it for my DW, much more detailed and in “her speak”. Reviewing/discussing our finances is not her favorite thing to do…she once told me she would rather get a root canal than have to meet with our Fidelity Rep to discuss our portfolio, lol. I am now comfortable in knowing she will be able to understand the details (rather than the 10,000 ft view) of our IPS should the need arise.

Cheers
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Re: Triggers for revising IPS?

Post by whodidntante »

Based on an orgy of forum posts lamenting the "underperformance" of whatever one bought compared to whatever one didn't buy as much of, I guess that's the main trigger. But I never change my IPS because I never wrote one in the first place. I also do not balance my checkbook, for the same reason.
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Re: Triggers for revising IPS?

Post by grabiner »

michaelingp wrote: Tue Jan 18, 2022 2:59 pm
Khuzud wrote: Sat Jan 15, 2022 3:28 pm My IPS contains a clause that says any changes to the IPS will only take effect six months after being put in writing. The IPS is meant to document long term strategy, not flavor-of-the-moment investment fads. If I feel I need to change my IPS for any reason, I’ll make the changes in writing but not actually act on them for six months. After the cooling off period, if I still feel the changes are warranted then I can execute the changes.
Great advice! Just curious, how often (i.e. percentage-wise), after the 90 day cooling off period do you execute, versus discard?
I have a three-month rule, and I have made every planned change after three months as long as it was appropriate at the time. (For example, I wrote a rule for when to pay off my mortgage, but I didn't pay off my mortgage three months later, because it was not appropriate. I paid off the mortgage in 2020 when the conditions were met.)
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Re: Triggers for revising IPS?

Post by Drew31 »

I “review” my IPS annually but rarely make changes. I divide this process into 3 parts.

1. Vision/Philosophy which outside of minor wording choices never changes
2. IPS - this is my allocation and rebalancing rules, etc. I read through this every year but don’t necessarily make changes. I use the rules for changes as 1. My need to take risk has changed or 2. My willingness to take risk has changed or 3. A major life event has occurred to cause me to reevaluate.
3. Goals. This document I map out financial goals for upcoming year as well as mid to longer term goals to ensure my budget and savings line up with my goals.

I’ve done this process for about 5 years now and has worked very well for me.
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