“The investor’s chief problem—and even his worst enemy—is likely to be himself.”

— Benjamin Graham

As per Investopedia, “An investment philosophy is a set of beliefs and principles that guide an investor's decision-making process.”

Why have an investment philosophy?

I got inspired by the idea of having an investment philosophy while listening to one of the guests in the ChooseFI podcast. Usually, investment companies have investment philosophies so that new and existing investors will get an idea of how the company invests.

After listening to the podcast, I learned that not only companies but also individual investors can have an investment philosophy. By having a written down policy, it’s much easier to stick to your plan than to panic and sell your investments especially when the market is down.

Before getting started with the philosophy, it is always good to begin with the end in mind. Here’s what it looks like for me:

My Wealth Mission Statement:

  1. Mission: Achieve Financial Independence (FI) by no later than age 45.
  2. Target: Build an investment portfolio of 25x annual expenses.

My Investment Philosophy:

Instead of getting rich quickly, I strongly believe in building wealth over the long term. It involves a lifetime of consistent saving and investing with a ton of patience. 

My ten investment philosophies:

  1. Invest for the long-term. Trust compounding.
  2. Invest in low-cost index funds (mostly VTSAX).
  3. Stay 100% in stocks until reaching Financial Independence (FI).
  4. Never have more than 10% of the portfolio in individual stocks and crypto.
  5. Make investments automatic. Set it and forget. Don’t try to time the market.
  6. Never panic and sell during a recession. Markets will always come back. Stay the course.
  7. Invest any bonus, salary increase, and/or windfall in VTSAX.
  8. Max out retirement accounts every year: 401(k), Roth/Traditional IRA, and HSA.
  9. Participate in Employer Stock Purchase Plan.
  10. A house is not an investment unless it puts money in your pocket (as a rental).

Others:

  1. Have a minimum savings rate of 10% and work towards achieving a 50% savings rate.
  2. Always have at least 6 months of expenses in an emergency fund.
  3. Pay off credit cards in full every month.
  4. Never spend more than 30% of gross income on mortgage payments.

Key Takeaway

I review this investment philosophy periodically, especially during any market downturns. It’s easy to panic and sell during any market downturn or a recession. By having a written down policy, I feel it’s much easier to commit to the long-term plan.

“Never interrupt compounding unnecessarily.”

— Charlie Munger

I believe that if I hold on to my philosophy for the long term, compounding will go nuts. Be patient and never interrupt compounding!