An investment policy statement is a written document setting out how a portfolio will be managed: its objectives, time horizon, risk tolerance, target allocation, rebalancing rules, and any constraints such as values-based screens. It is the reference point that decisions get checked against when markets are moving.
The value of writing it down is almost entirely about behavior under stress. Allocation targets and rebalancing rules agreed in a calm month are far easier to follow in a volatile one when they already exist on paper.
A useful statement is specific enough to be violated. If it cannot be pointed to and shown to have been followed or not followed, it is a description rather than a policy.
This definition is provided for educational purposes. It is general information, not investment, tax, or legal advice, and it does not account for any individual circumstances.