What advantage does an IPS provide to an investor?

An Investment Policy Statement (IPS) serves as a foundational document that outlines an investor's goals, risk tolerance, investment strategy, and guidelines for asset allocation. The advantage of providing a common vocabulary for risk and return is crucial because it ensures that the investor and their advisor are aligned in their understanding of key concepts. This alignment helps facilitate better discussions about investment choices and strategies, as both parties can refer to the same terms with a shared meaning.

Having a common vocabulary aids in clarifying expectations around risk tolerance and potential returns, thereby reducing misunderstandings that could arise during the investment process. Furthermore, it can help in monitoring performance relative to the stated objectives, making adjustments easier when necessary.

The other options do not accurately reflect the primary function of an IPS. While guarantees of returns might be appealing to investors, no investment strategy can guarantee a specific outcome, as investments are inherently subject to market risks. Exclusive access to certain investments may not be a direct benefit of having an IPS; instead, it often relates to the nature of the assets and the investor's relationship with investment managers. Lastly, protection against market losses is not a feature of an IPS; rather, it is a financial strategy that would require risk management tools or techniques separate from merely defining an investment