Many investors find themselves trapped in a perplexing cycle of underperformance and missed expectations from their investments. Choosing your Investment Philosophy is the missing link that can offer long-term peace of mind. Approaching investing without an cohesive Investment Philosophy is like building a house without a blue print.
Most people don’t realize that there are choices to be made regarding your market beliefs and investment strategy, and that there can be drastic effects on your investment success if these choices are not discussed and addressed. A well-defined investment philosophy can lead to lifelong peace of mind.
The first part of choosing your investment philosophy is to develop a True Purpose for Money. This is a statement of the most important value that you want to express through the way that you use money; it is the thing that is more important than money itself. What fundamental value will drive both your investing decisions and your spending decisions going forward?
The second is to develop a Market Belief by identifying what you believe about how markets work. If you believe that markets are efficient – you’d utilize structured asset class funds. If on the other hand, you believe that markets are not efficient, you’d use actively managed, speculative funds that attempt to beat the market. The third part is to develop an Investment Strategy, which is a plan to create and maintain your investment portfolio.
When you combine these three principles—your True Purpose for Money, your Market Belief, and your Investment Strategy –you have outlined your Personal Investment Philosophy and are on your way to lifelong peace of mind.