Why is it important to have an established investment policy?

An established investment policy serves as a guiding framework for an organization's investment strategy. One of the primary reasons for having such a policy is to provide a structured way to evaluate investment performance. It delineates clear objectives, benchmarks, and criteria for assessing investments, allowing organizations to measure success against pre-defined goals rather than on an ad-hoc basis.

This structure helps in maintaining consistency in decision-making, ensures alignment with the organization’s overarching financial goals, and facilitates accountability among investment managers. Through the implementation of the policy, stakeholders can systematically review and analyze performance over time, which is crucial for making informed adjustments to the investment strategy when necessary.

By contrast, approaches that emphasize randomness in decisions or the encouragement of high-risk investments could lead to unpredictable and potentially detrimental outcomes. Similarly, limiting investment to only local assets may restrict diversification and overall growth potential, which might not align with the broader goals of maximizing returns and managing risk effectively. Thus, the existence of an investment policy is fundamental in driving disciplined, effective investment practices.