The Importance of Investment Policy

Abstract

The importance of investment policy can be, and has been, measured in a variety of ways. The most widely quoted study measures policy's role in explaining the variance of returns; it measures the percent of variance explained by policy. The authors believe that the more pertinent measure is the percent of return explained by policy. That is, how much of your ending wealth is tied to investment policy, versus the other sources of growth, namely selection and timing.