5 Reasons to Have an Investment Philosophy

5 Reasons to Have an Investment Philosophy

David Booth, co-founder and executive chairman of Dimensional Fund Advisors, has said, “The most important thing about an investment philosophy is that you have one.”
 
Do you have one? And if you do, does anyone else know about it? Is it on your website, in your marketing materials and part of your prospect/client conversations?
 
Here are five ways an investment philosophy can impact your practice:
 

  1. Efficiency
    Once you have a set of guiding principles that don’t change when the market changes, everything you do aligns with those principles. It may be easier to figure out what to spend time on — and what not to.
  2. Client Experience
    You can’t provide a good client experience to someone looking for something you don’t offer. Having an investment philosophy — and being up front about it — may help you find clients who are a good fit, and avoid those who aren’t. Better to find out at the beginning than spend time cultivating a relationship that won’t last long term. And having one clear investment philosophy may allow you to be more efficient in working with clients and helps you deliver a more consistent experience.
  3. Better chance of consistent investment results
    Changing investment philosophies every time the market changes is a bit like the driver who keeps changing lanes on a crowded highway. We’ve all done this before: The cars in the next lane keep passing you, so you change lanes…only to find that now the lane you were just in is moving and you’re stuck again. Choose a philosophy you can believe in, and stick with it.
  4. Differentiation
    Having a clear and public investment philosophy may help you stand out from advisors who do not. You may also attract centers of influence who can help you build your expert team.
  5. Client conversations
    Your investment philosophy provides a foundation for client meetings and conversations. Once your clients understand and believe in your philosophy, you can spend more time talking about their goals and how to reach them, and less time on what markets are doing.

“When you’re about to do something small, you need a reason. When you’re about to do something big, you need a plan. When you’re about to do something life-changing, you need a philosophy.”1
 
Taking the time to determine your investment philosophy forms the foundation for your practice, and makes it possible to do something potentially life-changing for your clients.
 


1“How to Formulate an Investment Philosophy,” Investopedia, Zina Kumok, June 17, 2016.
 
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