Strategie
How to Set Investment Rules and Stick to Them Even in a Panic
Key takeaways
- An investment plan (IPS) is your pre-written commitment — it protects you from yourself in a panic.
- Rules must be specific, verifiable, and written down — not just in your head.
- Studying your own reaction to past downturns reveals whether your allocation matches your actual tolerance.
- Automation (DCA, DRIP) reduces the need for active decision-making in turbulent times.
- A regular review of the plan (annually) keeps it current — but do not rewrite it at every market swing.
Investment rules are most valuable precisely at the moments when you least want to follow rules — during a market downturn, mass panic, and news headlines screaming "sell".
Why investors break their rules
The brain reacts to financial loss more intensely than to an equivalent gain — the so-called loss aversion. During a 20% drop, a protective instinct kicks in commanding you to stop the losses. The problem is that those who sell typically miss the recovery and buy back in at higher prices instead. The result: a realised loss and a missed rebound.
Investment policy statement (IPS)
An Investment Policy Statement (IPS) is a document you write in a calm moment, in which you define:
- Goals: what you want to achieve with your investments and by when.
- Allocation: precise asset percentages and allowed deviations.
- Rebalancing rules: when and how to rebalance.
- Conditions for changing strategy: what must happen for it to be legitimate to change the plan (a life event, not a market drop).
- Prohibited actions: "I will not sell the entire portfolio on a drop of more than 20%."
Testing your actual risk tolerance
Risk tolerance cannot be measured precisely by a questionnaire — the real test only comes with the first downturn. Analyse retroactively how you behaved in March 2020 or in 2022. Did you sell? Did you buy more? If you are a newcomer, start with a more conservative allocation than you think you need. Better to give up a little return than to blow up the plan in a panic.
Automation as a lifesaver
The best protection against emotions is to minimise the need for decisions. Set up automatic monthly deposits (DCA), automatic dividend reinvestment, and a reminder for the annual rebalancing. The fewer decisions you have to make in a crisis, the less room there is for emotional mistakes. An overview of strategies from which to choose the foundation of your plan is available in the blog section.
FAQ
What is an investment plan (IPS)?
An Investment Policy Statement is a document you write in a calm moment: it defines your goals, allocation, rebalancing rules, and the conditions under which you may legitimately change strategy. It serves as a rational anchor during moments of market panic.
Why do investors sell during downturns?
Because of loss aversion — the brain reacts to loss roughly twice as intensely as to an equivalent gain. A protective instinct commands stopping the losses. The result is selling at the bottom and missing the recovery.
How do I find out my actual risk tolerance?
A questionnaire is only an estimate. The real test comes with the first downturn. Analyse your past reaction to the drops in 2020 or 2022. We recommend beginners start more conservatively than they think they need to.
How does automation help with discipline?
Automatic monthly DCA deposits and dividend reinvestment eliminate the need for active decision-making during turbulent periods. The fewer decisions in a crisis, the less room for emotional mistakes.