Family Investment Policy Statement
Turn long-term family goals into rules that withstand volatile markets
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 97%
The Family Investment Policy Statement adapts institutional investment discipline to individual wealth. It begins by defining the family’s desired lifestyle and legacy, then calculates what the portfolio must accomplish to support them. Asset allocation is evaluated alongside spending, borrowing, taxes, and market conditions because each variable changes the probability of reaching the goal. The resulting policy documents the intended allocation, decision rules, and long-term course before volatility arrives. During a downturn, the family follows the policy and rebalances rather than moving impulsively into cash. This creates a governance substitute for the boards and investment committees used by institutions, helping a family separate durable objectives from temporary fear and remain invested through full market cycles.
Origin
Keating developed this approach by transferring the goal-setting, governance, stress-testing, and policy disciplines used by institutional investors into BNY Mellon's work with wealthy families.
Core principles
- 01Define the goal before selecting investments
- 02Treat time in the market as an advantage
- 03Model controllable and uncontrollable variables together
- 04Judge performance after spending, borrowing, and taxes
- 05Use written policy to prevent emotional market timing
How to run it
- 1
Define the destination
Specify the income needed to support the family’s lifestyle and the financial or nonfinancial legacy it wants to preserve. Translate both into measurable near-term and long-term objectives.
Pro tip Discuss lifestyle and legacy separately before reconciling them into one plan.
Watch out Do not begin with products or return forecasts before agreeing on the goals.
- 2
Calculate the required outcome
Estimate the return and liquidity required to fund spending, preserve purchasing power, and meet legacy commitments. Use realistic inflation and time-horizon assumptions.
Pro tip Express success as a goal-funded probability rather than simply beating a benchmark.
Watch out An attractive nominal return may still fail after inflation, spending, and taxes.
- 3
Model the variables
Test how different asset allocations, spending rates, borrowing decisions, and tax outcomes affect the plan over time. Include adverse scenarios rather than relying on a single forecast.
Pro tip Distinguish controllable variables, such as spending, from uncontrollable market returns.
Watch out Testing only favorable conditions can create false confidence.
- 4
Write the policy
Document the strategic allocation, permitted ranges, liquidity needs, spending policy, and conditions for rebalancing. Make the rules clear enough to follow during stressful markets.
Pro tip Record why each rule exists so future family members can apply it consistently.
Watch out A vague policy will not constrain emotional decisions when volatility rises.
- 5
Rebalance through stress
When market movements push allocations outside their ranges, rebalance according to the policy even when doing so feels uncomfortable. Treat the written plan as the family’s governance mechanism.
Pro tip Review the long-term assumptions before changing the policy, not after reacting to prices.
Watch out Moving to cash during a decline can lock in losses and miss the recovery.
- 6
Review when goals change
Update the policy when lifestyle needs, family circumstances, tax rules, or legacy objectives materially change. Avoid rewriting it merely because markets have become volatile.
Pro tip Schedule regular reviews and define which events justify an off-cycle review.
Watch out Frequent tactical revisions can turn a long-term policy into disguised market timing.
In the wild
Keating’s college board had already completed asset-allocation work, stress testing, and a policy portfolio before the financial crisis. During the October 2008 turmoil, the board and investment committee followed that policy, rebalanced, and continued buying stocks despite the fear surrounding bank rescues and falling markets.
→ The institution maintained its long-term allocation instead of abandoning the strategy at distressed prices.
A family could define the annual income required in retirement, the inheritance it wants to preserve, and the liquidity needed for emergencies. It would then model allocation, spending, borrowing, and taxes before documenting rebalancing rules that remain in force during downturns.
→ The family gains a durable decision system tied to its own goals rather than daily market sentiment.
Common mistakes
Starting with asset allocation
Selecting investments before defining lifestyle and legacy goals produces a portfolio without a clear purpose or success criterion.
Ignoring spending and taxes
Investment returns alone do not determine whether wealth lasts; spending rates and after-tax outcomes can materially alter the result.
Changing policy during panic
Rewriting the plan in response to falling markets defeats its purpose and converts governance into market timing.
Is it for you?
Best for
Families and individuals managing substantial assets across retirement, tax, and generational objectives.
Not ideal for
Investors seeking short-term speculation, frequent market timing, or a portfolio detached from defined financial goals.
From the transcript
“We have all of our clients adopt an investment policy statement and wealth management, just as if they were institutions, and then we try to…”
“So the first thing we try to do is really be clear on what that goal is.”
“we've built models that help us to integrate all of these things and allow us to kind of show clients perspectively the impact of choices…”
From the episode
Catherine Keating on Wealth Management (Podcast)
Catherine Keating