WHY YOU NEED AN INVESTMENT PHILOSOPHY
Your Investment Philosophy Guides Your Strategy
Your investment philosophy forms the outer structure of your investment strategy, which should include your clearly defined objectives and the specific practices to be employed. The following philosophy statement clearly encapsulates a long term strategy:
Diversify broadly, stay invested, rebalance annually, minimize investment expenses; rinse, repeat.
All that’s needed is the specific practices or methods for creating a diversified portfolio and rebalancing it as needed to keep it aligned with one’s objectives and risk profile. The part about staying invested could be a little more difficult because that typically requires discipline and patience, which tends to elude many investors. However, having a well-conceived investment philosophy can keep you focused on what’s important and eliminate second-guessing.
In developing your investment philosophy, it would be important to have some insight into some of the more enduring investment principles and practices. With your financial future at stake, it would be well worth your while to read up on some of the most successful investors, such as Warren Buffet, Benjamin Graham, Peter Lynch and John Vogel, all of whom practice strict abidance to their philosophies. More importantly, you need to have a clear understanding of your own objectives and core beliefs about money and risk in order to have the strongest conviction in your investment philosophy.
It would also be important to work with an experienced investment advisor who shares your core values and beliefs about investing. Ideally, your advisor’s own investment philosophy (be leery of advisors who don’t have one), is compatible with yours.