Investment Strategy Statement – Part 1- Investment Philosophy

Inspired by Firevlondon, Weenie et al and as advised in Smarter Investing, over the course of a few posts I’ll aim to set out my Investment Strategy (1, 2, 3). To an extent I am concerned about the face validity of such a series, as my current investment experience runs to a Fidelity fund up to 2007 and cash savings. I aim to have a strategy in place for commencement of my portfolio, rather than changing my portfolio to fit a later strategy; “if you don’t know where you are going, you’ll end up someplace else”. As recommended by the textbooks and others I’ll be starting with my investment philosophy, and the rest of my statement will be set out in line with that suggested on Bogleheads (4).

Core philosophy:

“Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth” – John C. Bogle

Tenet 1: Diversification

Diversification, as wide as possible, as advised by Modern portfolio theory etc (5, 6, 7). Holdings will be diversified across global markets, ultimately in multiple accounts held with multiple companies. Property, cash accounts and tangible assets (cars, art, books) will further diversify my portfolio.

Tenet 2: Passive-focus

I will accept market returns, and will not change funds based on timing. I won’t rehash the evidence that passive investing is a superior strategy for long term returns (1, 8, 9). I lack the time and luck to ‘beat the market’ with active selection of stocks. In the past I held an active investment which did rather well in the run up to 2008, when I sold pre-crash by sheer blind luck. As my investment timeframe is 20+ years I am not interested in short term gains, so passive will work fine.

N.B. The exception to this rule is where active funds offer access to investments (i.e. unlisted companies) I’m targeting for growth in an experimental corner of my portfolio which I’ll go into in more detail at a later date.

Tenet 3: Reduce costs, taxes and fees

Maximise the % growth by minimising the amount I’m paying out for it. Minimise tax expenses through the use of ISAs and tax-free savings (10, 11).  I’ll use calculators like Monevator’s to select the cheapest platform available for my portfolio mix. (12) I’ll track expenses across all my investment and produce expense ratios.

Tenet 4: Grow and hold

My investment timescale is long, and my ultimate goal is not to use my portfolio for drawdown (discussed in Part 2 – Investment Goals) (13). I continue to earn and am in a (relatively) secure job. Therefore the aim is to accumulate diversified holdings for the long term. Preference for Acc funds and reinvestment. Preference for growth over dividends, for expansion and (in the experimental corner) for disruptive companies. Preference for physical assets, avoiding derivatives, synthetic or other complex financial products; I am beginning to understand these, and while I comprehend the theory I don’t feel comfortable with the additional counterparty risk (14, 15). Physical assets are to be a theme throughout my portfolio.

Tenet 5: Stick to allocation

As fits a diversified passive-focus portfolio my global allocation will mirror world markets, using all world tracker funds and ETFs (16). I’ll review world market data yearly, and set re-balancing targets based on global market cap weightings as the market  moves (16, 17). Since my timescale is long, my employment is (in theory) secure and my pension scheme is (supposedly) generous, I’m happy to take a reasonable amount of risk for my portfolio. Allocation will initially be set at 70% equities, 15% cash, 10% alternative assets, 5% property (18, 19) . Equities are split between a core 80% passive tracker portfolio and a testbed active portfolio (10% active funds, 10% stocks) aimed for growth. Allocations will be reviewed and re-balanced quarterly. Re-balancing will be through purchasing with new income where possible.

In summary:

  • Tenet 1: Diversification across world markets, and through multiple asset classes, held with multiple companies
  • Tenet 2: Predominantly passive focus to portfolio
  • Tenet 3: Reduce fees and maximise tax efficiency through use of ISAs and tax-free savings accounts
  • Tenet 4: Hold and grow investments through re-accumulation and compound investing in simpler financial products
  • Tenet 5: Monitor mix of investments against target allocation quarterly, investing to rebalance

In the next post in this series I cover my goals.

The Shrink


  1. Smarter Investing 3rd edn – Tim Hale



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