Curriculum·S207 Investing Frameworks (Unleveraged)·about 31 min
Writing the Investment Policy Statement
By the end of this lesson you can
- →Write an Investment Policy Statement containing the eight sections that make it operable
- →Express every rule so that a second person could apply it without asking what you meant
- →Attach a pre-committed response to each trigger, rather than a description of the trigger
- →Set the amendment procedure that stops the document being rewritten during a drawdown
Sophomore · enrolled learners
This lesson opens with The behavior gap, applied to the reader.
- What happened
- This lesson's opener is the course autopsy turned on you, and it is labeled as such. DALBAR's annual Quantitative Analysis of Investor Behavior estimates, from aggregate fund flows, what the average fund investor actually earns after fees, charges and their own purchases and sales, and compares it with a market index. For calendar 2024 it reported the average equity investor at 16.54 percent against the S&P 500's 25.02 percent, a one-year gap of 848 basis points and the second largest of the past decade, with withdrawals from equity funds in every quarter and the largest outflows just before a major return surge. PlanAdviser's report of that study put the run of years in which the average equity investor trailed the index at fifteen, with 2009 the last year they beat it. For 2025 DALBAR put the gap at 72 basis points, the smallest since 2012. DALBAR attributes the gap to behavior rather than to the market, but it compares investors with an index rather than with the funds they held, and how much of the gap is behavior is disputed: critics argue the method confounds behavior with the sequence of market returns, Morningstar's same-fund measure put the shortfall at 1.2 percent a year over 2015 to 2024, and a 2026 Financial Analysts Journal paper found poor timing cost about 0.10 percent a year in the same sample.
- The decision point
- This is the lesson's reading, which no study measures directly: the investors inside that number had plans, and almost none had them written down, dated, with the response to each trigger decided in advance, which is the only difference between a plan and an intention. The document this lesson asks you to produce is not an aid to good judgment. It is a substitute for judgment at the moments when the flow data suggest judgment is weakest.
What you will be able to answer
- →What makes a policy statement operable rather than aspirational?
- →Name the eight sections.
- →Why does the amendment procedure matter most?
- →What is the document actually for?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.dalbar.com/PressReleases/doc/2025QAIBPressRelease.pdf
- https://www.dalbar.com/PressReleases/doc/2026QAIBReportPressRelease.pdf
- https://blog.dalbar.com/qaib-glossary
- https://www.planadviser.com/investors-bad-behavior-led-sharp-underperformance-2024/
- https://rpc.cfainstitute.org/research/financial-analysts-journal/2026/bad-timing-does-not-cost-investors-funds-returns
- https://www.kitces.com/blog/does-the-dalbar-study-grossly-overstate-the-behavior-gap-guest-post/
- https://jumpcrypto.com/resources/the-depegging-of-ust
- https://www.imf.org/-/media/files/publications/gfs-notes/2022/english/gfsnea2022001.pdf
Confidence medium·Volatility low·Reviewed 2026-08-06·Owner unassigned
Contested
DALBAR's method is disputed. It builds the average investor return from aggregate fund flows (its glossary: the change in assets after sales, redemptions and exchanges, capturing fees, sales charges and trading costs) and compares it with an index, not with the funds held. Harry Sit (Kitces.com, 2012) argues the method confounds investor behavior with the sequence of market returns. Morningstar's Mind the Gap, a same-fund comparison, put the shortfall at 1.2 percent a year over 2015 to 2024; Fulkerson, Jordan, Riley and Yan (Financial Analysts Journal, 2026) found that on the same sample poor timing costs about 0.10 percent a year. The direction is widely reported; the magnitude, and how much of it is behavior, are not settled. Present the gap as measured by DALBAR's method, never as a settled quantity.
The 848 basis points is one year's gap (calendar 2024, published 31 March 2025), not an annual average. The 2024 press release (QAIB2024_PR.pdf) covers calendar 2023 and must not be cited for 2024 figures. The fifteen-consecutive-years figure is PlanAdviser's report of the 2025 study, not DALBAR's press release. The decade figures this lesson previously taught (about 9.8 against 13 percent) could not be traced to any DALBAR document and were cut. For 2025 DALBAR reported a 72 basis point gap; update both figures together when the next study appears.
That the investors in the gap had plans but not written ones is this lesson's reading, not a finding of any study. Keep it labeled.
This lesson prescribes a document structure rather than surveying options, deliberately. Do not let a revision soften it into a menu; the value of the artifact comes from it being specific enough to violate.