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What's your Philosophy? Thumbnail

What's your Philosophy?

By clicking on the first link of any Wikipedia page and then clicking on the first link of the following Wikipedia page and so on, you always reach the same topic: philosophy. This is the basis for knowledge. When building your financial plan, the investment philosophy is a key part of a successful outcome.

There are many “rules” of investing, and many books have been dedicated to this subject. A successful investor needs to have a philosophy. There are many different ways to invest, and no one way is “right.” Each one is an opinion.

By defining your investment philosophy, you have a clear basis to work from. An investment philosophy is a set of beliefs and principles that guide an individual or organization's investment decisions. It includes an individual's goals, risk tolerance, and views on the markets and economy. A well-defined investment philosophy can help investors make informed and consistent decisions and potentially achieve their investment objectives.

Research in New Zealand by the Financial Markets Authority identified four main types of investors who invest via online platforms:

1. Planters (47%)—online investing is a significant part of their wealth strategy, and they focus on time in the market. Tend toward indexes and shares in strong companies. Their level of analysis before making a decision can be limited.

2. Speculators (20%)—online investing is a significant part of their wealth strategy, and they focus on timing the market—to see short term gains. Speculators are younger and are more willing to risk what they have now because they think if they have a significant loss they have time to make it up in the future. FOMO (fear of missing out) is a big driver for them.

3. Dabblers (19%)—online investing is a side activity, and they focus on time in the market. Dabblers do a lot of research before making a decision, they take their time and are cautious.

4. Opportunists (19%)—online investing is a side activity and they focus on timing the market to get a short-term profit. They are on the look-out for an opportunity—the opportunities they go for aren't always well researched, but they feel they can take risks because online investing is only a small part of their portfolio.

These different categories are also a depiction for these investors’ investment philosophy or lack of one. Unfortunately, the research didn't capture the investing success of the various types.

We know that over the long term, equity markets have tended to offer greater returns than cash and many other types of investments and can offset the impact of inflation. But it is important to be aware that markets can fall in value. Often, falls can be sudden, and occasionally dramatic, with no proven way of being able to anticipate them. Such falls in the value of your investment can be distressing and there may be a temptation to withdraw your money in response to them in order to avoid any further losses. Withdrawing funds in response to market falls is often a bad idea as historically, markets have tended to recover very quickly after crashes and corrections.

This is called maximum drawdown and represents the worst possible investment result. This figure describes the loss you would incur if you invested in a portfolio at the highest point of the market and then sold your investment at its lowest point over the period measured.

An investor should always be prepared for the value of their portfolio to fall by the maximum drawdown figure and feel comfortable about keeping their money invested in the belief that the value of the portfolio will recover. A good investment philosophy will help an investor during periods when there are sudden falls, such as in 2022.


This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.