Understanding Your Investment Philosophy

William Miller |

Some believe that in a digital world where information travels at light speed, the playing field between investors and institutions is more level. All this information can overload you and just become a lot of noise! This extra noise can fuel more irrational behavior in investors rather than provide any advantage.

Your Investment Philosophy

When developing your investment philosophy, you should have a clear understanding of your own objectives, core beliefs about money, and risk tolerance in order to develop a strong conviction in your investment philosophy. Your investment philosophy is like a framework for your investments. It should include clearly defined objectives and the specific practices to employ. The following sample philosophy statement encapsulates a long-term strategy:

“To have a diversified portfolio built of low-cost index funds, that is rebalanced once per year.”

The main items in this example are creating a diversified portfolio, owning low-cost index funds, and rebalancing annually. With a well-constructed investment philosophy, you may have an easier time focusing on what’s important and potentially eliminate second-guessing.

Here are different areas you can build your investment philosophy around:

  • Value-Based Investing- where you purchase a fund/stock when you think it is undervalued.
  • Socially Responsible Investing- here you are investing in funds/stocks that align with your values with regards to environmental or social concerns.
  • Technical Analysis- the use of historical data to view patterns and trends.
  • Foundation Analysis- investors using the foundational approach are investing in companies that are sound foundationally (high revenue, potential for growth, low liabilities).

Control What You Can

There are a lot of things that you cannot control when it comes to your investments, but that’s why it is important to control what you can! Notice that in the investment philosophy it doesn’t state that to earn a specific portfolio return, when to invest and when to “time the market” or when to buy the newest stock and try to get rich off it.

These “goals” (more like wishes) are not realistic. Could you find the next Apple or Amazon, sure but what are the odds? How much money would you lose trying to find the next huge thing?

The stock market will fluctuate up and down with every trade, world event, or news story that comes up. You cannot control the market and there will be downs, it just happens. This is where your investment philosophy comes into play, and you block out the “noise”.

So, what can you control?

  • Your risk level- how you construct your portfolio, will either increase or decrease your potential risk.
  • Your savings level- how much you are saving is also something that you can control. The amount you save will also affect how much return you will need to reach your goals.
  • Your level of control- emotions are a huge factor in many investors’ portfolios (mostly for the worse). Working with an investment advisor can help you take the emotions out of play.

You may also want to consider working with an experienced financial advisor who shares your core values and beliefs about investing. Ideally, your financial advisor’s own investment philosophy is compatible with yours.

Key Takeaways

  • Create an investment philosophy that you will stick to even in down markets.
  • Build your portfolio around your investment philosophy.
  • Focus on what you can control
  • Block out the extra noise.


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes*