Investment Policies

The Importance of a Good Investment Policy

A poorly written investment policy can be, and usually is, very expensive, as investments are either directed through a favored dealer who may not be providing the best yields or the asset classes allowed within the investment policy are so restrictive all your investments are in one “basket” and it is difficult to make a decent return.

Asset Classes

Multiple asset classes firstly ensure investments are spread out and that you have a real opportunity to earn higher yields through diversification.Imagine just how low returns would be if the only asset class allowed was Federal Government Bonds. Safe.. yes… but!The next rung on the asset class ladder would include provincial or state bonds. Again, safe.. with some safer than others… but still a poor return overall!Then beyond government securities there are several excellent assets classes that should be considered, including mortgage securities, bonds, certificates of deposit, term deposits… One does not need to get too fancy here or add a lot of risk. The important thing concerning asset classes is to ensure the investment classes you want, and need, are available through your policy.

Quality Investments

Nobody wants to invest in a fixed income security only to see the investment downgraded or worse yet, bankrupt. The return of your investment is more important than the return on your investment, yet many financial institutions totally disregard quality of investments in policy and when placing investments.Although rating agencies are not perfect, no one knows the financial wherewithal of governments, banks, corporations and agencies better than the rating agencies. Their ratings are based on in-depth industry-specific knowledge and a lot of number crunching.

So ensure all investments are at least investment grade where a minimum rating of BBB. You may want to raise the bar a bit higher by containing all fixed income securities to investments rated A, AA and AAA rated, as recommended by Tuff Risk. Even yield hungry investments can be accommodated when one utilizes the information provided by the rating agencies.

Tuff Risk specializes in developing investment policies designed to ensure:

  • Asset classes are sufficiently broad
  • Quality of investments meet targeted Standard & Poor’s ratings
  • Diversification of investment names

Should you require assistance in drafting a good investment policy or presenting your new policy to your Board, give us a call or email Ron at

Multiple Dealers

Leaving just 10 basis points on the table takes away serious money from your portfolio returns. A quick view of your fixed income portfolio and you will see what we are referring to. Placing one phone call to one dealer will never ensure that your are getting the best return on investments. Worse yet are the on-line “click here” Dealer portals that don’t care what kind of relationship you have with your dealer. Make sure your investment policy allows you to invest through two or three sources. And… pick up the phone.

Name Diversification

your investments in just a few names is risky business. If one name defaults, is downgraded or goes bankrupt, the future of your company may easily be in jeopardy. Name diversification ensures that you do not “put all your eggs in one basket” and protects your portfolio from “one bad egg”.Credit unions are at risk by placing their excess liquidity with the same Dealer/Central holding their statutory liquidity. Name diversification makes sense in that a well-diversified portfolio will be invested in a several names and throughout a number of industries.Tuff Risk can provide assistance in the construction of a firm-specific investment policy, which would ensure your organization is among the best of class. Give us a call or email Ron at

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