Building Your Investment Philosophy

​

What You’ll Learn

• What an investment philosophy is and why you need one
• Different investing philosophies (and which fits you)
• How to create your personal Investment Policy Statement
• Core principles that guide wealthy investors
• How to use your philosophy during emotional moments
• Examples of complete investment philosophies

​

Why This Matters

• 🎯 You want clarity on your investing approach
• 📝 You need a plan to follow when emotions hit
• 🧭 You want a North Star to guide decisions
• 💪 You’re ready to commit to long-term success
• 🏆 You want to join the 10% who succeed

​

What Is an Investment Philosophy?

​

The Definition

• Why am I investing?
• What am I investing in?
• How will I behave during different markets?
• When will I buy/sell?
• What are my non-negotiable rules?

• Specific stock picks (those change)
• Market predictions (impossible)
• Temporary strategies (those evolve)

• Timeless principles that guide decisions
• Your belief system about investing
• The rules you follow regardless of emotions or market conditions

​

Why You Need One

• ❌ Make random decisions based on news
• ❌ Panic sell during crashes
• ❌ FOMO buy at tops
• ❌ No consistency
• ❌ Emotions override logic
• ❌ Poor long-term results

• ✅ Clear framework for every decision
• ✅ Emotional anchor during volatility
• ✅ Consistent approach
• ✅ Can explain why you own each investment
• ✅ Better sleep at night
• ✅ Superior long-term results

​

Core Components of an Investment Philosophy

​

1. Purpose and Goals

• Retirement at age ___?
• Financial independence?
• Kids’ education?
• Buy a house?
• Leave a legacy?

• Specific dollar amount
• Timeline to reach it
• Monthly/yearly contribution needed

"I am investing to retire at age 65 with $2 million in today's dollars.
This will provide $80,000/year in retirement income at a 4% withdrawal rate.
I need to invest $800/month for 35 years at 10% average return."

​

2. Time Horizon

• 5-10 years? (medium-term)
• 10-20 years? (long-term)
• 30+ years? (very long-term)

• Time horizon determines asset allocation
• Longer horizon = more stocks (volatility is okay)
• Shorter horizon = more bonds/cash (stability needed)

"I will not touch this money for at least 30 years until retirement.
Therefore, I can accept short-term volatility for long-term growth.
I will invest primarily in stocks (90%) with small bond allocation (10%)."

​

3. Risk Tolerance

• Can you hold through a 50% drop?
• Would you panic sell at -30%?
• Can you sleep at night when portfolio is down?

• Your personality (naturally risk-averse or aggressive?)
• Your age (young = more risk capacity)
• Your financial situation (stable job = more risk capacity)
• Your experience (beginners should be conservative initially)

"I can tolerate a 40% drop in my portfolio without panic selling.
I understand bear markets happen every 5-10 years and always recover.
I will NOT sell during market crashes. I will buy more if possible."

​

4. Investment Approach

• Passive indexing (buy index funds, hold forever)
• Value investing (buy undervalued companies, hold long-term)
• Growth investing (buy fast-growing companies)
• Dividend investing (buy dividend-paying stocks for income)
• Mix of approaches

"I will use passive index fund investing as my core approach.
70% of my portfolio will be in broad market index funds (VOO, VTI).
30% can be in individual stocks I research and understand.
I will hold all investments for minimum 5 years."

​

5. Asset Allocation

• Stocks (domestic)
• Stocks (international)
• Bonds
• Cash
• Real estate (optional)
• Alternative investments (optional)

Asset Allocation:
- 63% U.S. stocks (VOO)
- 27% International stocks (VXUS)
- 10% Bonds (BND)
- 0% Cash (held separately as emergency fund)

I will rebalance back to these targets annually in January.

​

6. Position Sizing and Diversification

• Maximum % in one stock
• Minimum number of holdings
• Sector limits

Diversification Rules:
- No more than 5% in any single stock
- Minimum 15 different holdings (or use index funds)
- No more than 20% in any single sector
- 70% must be in diversified index funds

This ensures one bad investment can't destroy my portfolio.

​

7. Buy and Sell Discipline

• Automatic monthly contributions?
• Buy during market dips?
• Lump sum when you have cash?

• Never (until retirement)?
• When fundamentals change?
• When reaching target price?
• To rebalance?

Buy Discipline:
- Invest $600 automatically on the 1st of every month
- If market drops 20%+, invest extra $1,000 from emergency savings
- Never try to time purchases otherwise

Sell Discipline:
- Never sell during market drops (hold through all volatility)
- Only sell if company fundamentals permanently deteriorate
- Sell to rebalance once per year (January)
- No trading for short-term gains (minimum 1-year hold)

​

8. Behavioral Rules

• Don’t get overconfident
• Stick to plan (don’t buy more just because it’s going up)
• Don’t chase hot stocks

• Don’t panic
• Hold all positions
• Buy more if have extra cash
• Don’t check portfolio daily

Behavioral Commitments:
- I will check my portfolio quarterly only (not daily)
- I will NOT sell during market crashes
- I will NOT chase stocks up 20%+ in a week
- I will NOT make investment decisions based on news headlines
- I will ask Sage before making any impulsive decision

​

Major Investment Philosophies: Which Fits You?

​

Philosophy #1: Passive Index Investing (Recommended for Beginners)

• Can’t beat the market consistently
• Broad diversification reduces risk
• Low fees compound to massive savings
• Time in market > timing the market
• Boring but effective

• Buy low-cost index funds (VOO, VTI, VXUS)
• Hold forever
• Rebalance annually
• Ignore daily noise

• Warren Buffett (recommends for 99% of people)
• Jack Bogle (Vanguard founder)
• Academic research (90% of pros don’t beat index)

• 60% VTI (Total U.S. Market)
• 30% VXUS (Total International)
• 10% BND (Total Bond Market)
• Rebalance yearly

• Beginners
• Busy professionals
• Anyone who wants simplicity
• Long-term investors (10+ years)
• People who value sleep over excitement

​

Philosophy #2: Value Investing

• Market sometimes misprices stocks
• Buy undervalued companies trading below intrinsic worth
• Hold until market recognizes true value
• Margin of safety protects downside

• Analyze company fundamentals (P/E ratio, book value, cash flow)
• Buy when stock is “on sale”
• Hold for years (3-10+ years common)
• Patient capital

• Warren Buffett
• Benjamin Graham
• Charlie Munger

• Research company worth $100/share
• Wait for market panic
• Buy at $60/share
• Hold until market values it at $120+
• Sell and find next undervalued company

• Patient investors
• People who enjoy research
• Contrarians (comfortable buying when others sell)
• Long time horizons (5-10+ years)

​

Philosophy #3: Growth Investing

• Companies with rapid growth justify high valuations
• Growth compounds over time
• Better to pay fair price for great company than cheap price for mediocre one
• Future potential > current valuation

• Find companies growing revenue 20-40%+ annually
• Buy and hold through volatility
• Accept high P/E ratios
• Focus on innovation and market disruption

• Cathie Wood
• Philip Fisher
• Growth-focused fund managers

• Buy Amazon at high P/E when it’s disrupting retail
• Buy Tesla when it’s leading EV revolution
• Hold through 40% swings
• Benefit from multi-year growth trends

• Higher risk tolerance
• Believers in innovation and disruption
• Comfortable with volatility
• Long time horizons (5-10+ years)

​

Philosophy #4: Dividend Investing

• Consistent dividend payments = stable companies
• Dividends provide income and compound growth
• Less volatile than growth stocks
• Total return = dividends + capital appreciation

• Buy companies with 20-50 year dividend history
• Reinvest dividends to compound
• Focus on dividend growth, not just yield
• Hold forever (or until dividend cut)

• Retirees needing income
• Dividend Aristocrats strategy
• Conservative long-term investors

• Buy Johnson & Johnson, Coca-Cola, Procter & Gamble
• Collect 2-4% dividend yields
• Reinvest dividends to buy more shares
• Compounding + capital appreciation over decades

• Conservative investors
• Retirees wanting income
• Preference for stability over growth
• Long time horizons (10+ years)

​

Philosophy #5: Hybrid Approach (Core + Satellite)

• Combine safety of indexing with potential of active selection
• Core provides stability and guaranteed average returns
• Satellite allows for outperformance and learning

• 70-80% in index funds (core)
• 20-30% in individual stock picks (satellite)
• Core never changes
• Satellite can be more active

• Core: $70,000 in VOO/VXUS/BND (80%)
• Satellite: $20,000 in 10 individual stocks (20%)
• Satellite can try value, growth, dividend strategies
• If satellite underperforms, core still doing well

• Intermediate investors
• People who want to learn stock picking without too much risk
• Desire for safety + excitement
• Long time horizons (5+ years)

​

Your Personal Investment Policy Statement

​

Template: Complete Your Own

MY INVESTMENT POLICY STATEMENT

Written on: [Date]
Last revised: [Date]

═══════════════════════════════════════════════════════

1. PURPOSE & GOALS

I am investing to achieve:
- Primary goal: [Retirement / House / Financial independence / etc.]
- Target amount: $[Amount needed]
- Target date: [Month Year]
- Timeline: [X years]

═══════════════════════════════════════════════════════

2. PERSONAL SITUATION

Age: [X]
Employment: [Status]
Income: $[Annual income]
Emergency fund: $[Amount] ([X] months of expenses)
Risk tolerance: [Low / Medium / High]
Investment experience: [Beginner / Intermediate / Advanced]

═══════════════════════════════════════════════════════

3. TIME HORIZON & RISK TOLERANCE

Time horizon: [X] years until I need this money
I can tolerate portfolio drops of up to: [X]%
I will NOT sell if portfolio drops: [X]%
I understand bear markets happen every 5-10 years: [Yes/No]

═══════════════════════════════════════════════════════

4. INVESTMENT PHILOSOPHY

My core philosophy: [Passive indexing / Value / Growth / Dividend / Hybrid]

I believe:
- [Core belief #1]
- [Core belief #2]
- [Core belief #3]

═══════════════════════════════════════════════════════

5. ASSET ALLOCATION

Target allocation:
- U.S. Stocks: [X]% → Invested in: [VOO / VTI / etc.]
- International Stocks: [X]% → Invested in: [VXUS / etc.]
- Bonds: [X]% → Invested in: [BND / etc.]
- Cash: [X]% (held separately as emergency fund)
- Other: [X]%

Rebalancing: [Frequency] when allocation drifts [X]% from target

═══════════════════════════════════════════════════════

6. POSITION SIZING & DIVERSIFICATION

Rules:
- Maximum in any single stock: [X]%
- Maximum in any sector: [X]%
- Minimum holdings: [X] different companies or index funds
- Core index funds must be: [X]% of portfolio

═══════════════════════════════════════════════════════

7. CONTRIBUTION PLAN

I will contribute:
- Amount: $[Monthly amount]
- Frequency: [Monthly / Bi-weekly / Quarterly]
- Date: [1st of month / Payday / etc.]
- Method: [Automatic transfer / Manual]

Allocation of new contributions:
- [X]% to [Fund/Asset]
- [X]% to [Fund/Asset]
- [X]% to [Fund/Asset]

═══════════════════════════════════════════════════════

8. BUY DISCIPLINE

I will buy when:
- Regular contributions regardless of market price
- Market drops [X]% (opportunity to buy more)
- [Other specific conditions]

I will NOT buy when:
- Stock is up [X]% in past week (avoid FOMO)
- Acting on hot tips without research
- Emotional or impulsive

═══════════════════════════════════════════════════════

9. SELL DISCIPLINE

I will sell when:
- Rebalancing annually (only sell to target allocation)
- Company fundamentals permanently deteriorate
- [Other specific conditions]
- At retirement (systematic withdrawal plan)

I will NEVER sell when:
- Market drops (panic selling)
- Short-term volatility (< 1 year)
- News headlines scare me
- Everyone else is selling

═══════════════════════════════════════════════════════

10. BEHAVIORAL RULES

I commit to:
- Check portfolio: [Quarterly / Monthly / Annually]
- NOT checking daily or weekly
- NOT making decisions based on emotions
- Following this plan during bull and bear markets
- Asking Sage before any impulsive decision
- Holding through volatility without panic selling
- Buying more during major market drops (if possible)
- Ignoring financial media noise
- Trusting long-term compounding

═══════════════════════════════════════════════════════

11. TAX STRATEGY

I will:
- Max out [401k / IRA / Roth IRA / etc.] first
- Use tax-advantaged accounts before taxable
- Hold investments minimum 1 year (long-term gains)
- Harvest tax losses opportunistically
- Reinvest dividends automatically

═══════════════════════════════════════════════════════

12. EMERGENCY PROCEDURES

If market drops 20-30% (bear market):
- I will: [HOLD all positions, BUY more if possible]
- I will NOT: [Sell anything, panic, check daily]
- I will remind myself: [This is normal and temporary]

If I lose my job:
- I will: [Use emergency fund, stop contributions temporarily]
- I will NOT: [Sell investments for expenses]

If I need money urgently:
- I will: [Use emergency fund first]
- If must sell investments: [Sell bonds first, then stocks]
- I will NOT: [Sell everything in panic]

═══════════════════════════════════════════════════════

13. REVIEW AND ADJUSTMENT

I will review this policy: [Annually in January]
I will adjust allocation if: [Life circumstances change significantly]
I will NOT adjust based on: [Market performance, short-term results]

═══════════════════════════════════════════════════════

14. MY COMMITMENT

I, [Your Name], commit to following this investment philosophy
for the next [X] years regardless of:
- Market conditions
- News headlines
- Short-term performance
- Other people's opinions
- My emotional state

I understand that discipline + time = wealth.

I will reread this document whenever I feel emotional about investing.

Signed: _____________________
Date: _____________________

═══════════════════════════════════════════════════════

​

Example: Sarah’s Investment Policy Statement

MY INVESTMENT POLICY STATEMENT

Sarah Johnson
Age: 28
Written: January 1, 2024

═══════════════════════════════════════════════════════

1. PURPOSE & GOALS

I am investing to retire at age 65 with $2 million (in today's dollars).
This will provide $80,000/year in retirement income.
Timeline: 37 years

═══════════════════════════════════════════════════════

2. PERSONAL SITUATION

Employment: Software Engineer, $95,000/year
Emergency fund: $20,000 (8 months expenses)
Risk tolerance: Medium-High (can handle 40% drops)
Experience: Beginner (started investing 2 months ago)

═══════════════════════════════════════════════════════

3. INVESTMENT PHILOSOPHY

Core philosophy: Passive Index Investing with small active component

I believe:
- I cannot beat the market consistently
- Low-cost index funds provide best risk-adjusted returns
- Time in market > timing the market
- Boring but consistent wins long-term

═══════════════════════════════════════════════════════

4. ASSET ALLOCATION

Target allocation:
- 70% U.S. Stocks → VTI (Total Stock Market)
- 20% International Stocks → VXUS
- 10% Bonds → BND

Rebalance: Annually every January

═══════════════════════════════════════════════════════

5. POSITION SIZING

Rules:
- 90% must be in index funds
- Remaining 10% can be individual stocks (learning)
- Maximum 5% in any single stock
- Minimum 3 index funds (VTI, VXUS, BND)

═══════════════════════════════════════════════════════

6. CONTRIBUTION PLAN

Contribute: $700/month automatically on the 1st
Allocation: 70% VTI, 20% VXUS, 10% BND

Annual Roth IRA: Max $7,000 (January)
Annual 401k: $10,000 (via paycheck, get full match)

═══════════════════════════════════════════════════════

7. BEHAVIORAL RULES

I commit to:
- Check portfolio QUARTERLY only (1st of Jan/Apr/Jul/Oct)
- NEVER sell during market drops
- BUY MORE if market drops 20%+ (from $5,000 emergency buffer)
- Hold all positions minimum 5 years
- Ask Sage before any unplanned purchase

═══════════════════════════════════════════════════════

8. EMERGENCY PROCEDURES

If market crashes 30%:
- I will HOLD everything
- I will ADD $5,000 from emergency buffer if possible
- I will REREAD this document daily if needed
- I will NOT check portfolio until market recovers
- I will ask Sage for perspective

═══════════════════════════════════════════════════════

9. MY COMMITMENT

I, Sarah Johnson, commit to this plan for 37 years.
I will not deviate based on:
- Friends' investment advice
- News headlines
- Market crashes
- Short-term performance

I trust math > emotions.
Discipline + time = $2 million at retirement.

Signed: Sarah Johnson
Date: January 1, 2024

═══════════════════════════════════════════════════════

​

Using Your Philosophy: Practical Applications

​

Scenario 1: Market Crashes 25%

• Panic: “I’m losing everything!”
• Sell at bottom
• Lock in losses

• Read investment policy statement
• See: “I will HOLD during crashes. This is normal and temporary.”
• Ask Sage for perspective
• Hold through it
• Maybe buy more if have cash
• Avoid catastrophic mistake

​

Scenario 2: Hot Stock Everyone is Buying

• FOMO: “I’m missing out!”
• Buy at top
• Watch it crash

• Read position sizing rules
• See: “Maximum 5% in any single stock”
• Check: Would this fit my allocation?
• Research fundamentals first
• Ask Sage: “Is this good fit for my philosophy?”
• Make rational decision, not emotional

​

Scenario 3: Friend Gives “Amazing Tip”

• “My friend made money, I should too!”
• Buy without research
• Lose money

• Read buy discipline section
• See: “I will NOT buy based on tips without research”
• Thank friend
• Research independently
• Maybe buy IF it fits philosophy after research
• Protect yourself from bad tips

​

Scenario 4: Portfolio Down 15% in Month

• Constant checking
• Anxiety and stress
• Consider selling

• Read behavioral rules
• See: “I check quarterly only. This is normal volatility.”
• Close portfolio app
• Trust the plan
• Continue life stress-free
• Mental health preserved

​

Reviewing and Updating Your Philosophy

​

When to Review

• Every January
• Check if philosophy still fits life situation
• Update contribution amounts
• Adjust allocation if age-appropriate

• Marriage/divorce
• Having children
• Job change (income change)
• Inheritance
• Health issues
• Approaching retirement

• After bad month
• During market crash
• When you’re emotional
• Because of news headlines

​

When to Update Philosophy

• ✅ Age-based allocation shift (every 5-10 years)
• ✅ Income increased (can contribute more)
• ✅ Goals changed (retire earlier/later)
• ✅ Risk tolerance actually changed (not just scared by drop)
• ✅ Gained experience (beginner → intermediate after 2-3 years)

• ❌ Market dropped 20% (stick to plan!)
• ❌ Your philosophy underperformed for 1 year
• ❌ Friend is making more money with different approach
• ❌ You’re bored and want excitement
• ❌ News predicts crash

​

Success Checklist

• ✅ I wrote my complete Investment Policy Statement
• ✅ I defined my goals and timeline
• ✅ I chose my investment approach (passive indexing recommended)
• ✅ I set my asset allocation
• ✅ I defined position sizing rules
• ✅ I committed to buy and sell discipline
• ✅ I created behavioral rules
• ✅ I planned for market crashes

• ✅ I saved it somewhere accessible
• ✅ I will reread it monthly
• ✅ I will reread it when emotional about markets
• ✅ I will ask Sage if decision fits my philosophy
• ✅ I will NOT deviate during volatility
• ✅ I will review annually and update only when appropriate

• ✅ I have emergency fund
• ✅ I have written plan
• ✅ I understand my philosophy
• ✅ I’m committed for decades
• ✅ I’m ready to build wealth

​

What’s Next?

​

You’ve Completed Pre-Investor Education! 🎉

• ✅ Why investing matters
• ✅ Stocks, bonds, ETFs, and cash
• ✅ How to choose brokerage
• ✅ How to open and fund account
• ✅ Order types and market hours
• ✅ Paper trading basics
• ✅ Investing vs trading vs gambling
• ✅ Risk management
• ✅ Compound interest
• ✅ Volatility and emotions
• ✅ Common mistakes
• ✅ Building your philosophy

​

Next Steps

• Your First $100 in ETFs →
• Your First $100 in Stocks →
• Build a Diversified Portfolio →

• [Paper Trading on Ape AI →](../Getting Started/paper-trading-practice)

​

Ask Sage to Review Your Philosophy

Sage, I just wrote my Investment Policy Statement. Can you review
it and tell me if I'm missing anything or if something doesn't
make sense? Here it is: [paste your statement]

• Review your philosophy for completeness
• Identify any inconsistencies
• Suggest improvements
• Validate it makes sense for your situation
• Give you confidence to proceed

​

The Bottom Line

• ✅ Your North Star for all decisions
• ✅ Your emotional anchor during volatility
• ✅ The difference between success and failure
• ✅ More important than any individual investment choice

1. Write it down (unwritten = doesn’t exist)
2. Keep it simple (complexity = confusion)
3. Be specific (vague = useless)
4. Review regularly (annually)
5. Follow it religiously (discipline wins)

• You’ll make emotional decisions
• You’ll panic during crashes
• You’ll FOMO during rallies
• You’ll be part of the 90% who fail

• You’ll make rational decisions
• You’ll hold through crashes
• You’ll ignore FOMO
• You’ll be part of the 10% who succeed