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Investing Specialists

The Error-Proof Portfolio: Why You Need an Investment Philosophy

Having conviction in your belief system can help you act with discipline.


"Strategy comes from philosophy. If you don't have a philosophy, you can develop a strategy, but it's only going to blow apart the next time it doesn't work for a month or two. And you are going to go onto another strategy, and that's the worst thing you can do."

Author and investment manager Rick Ferri made that comment in an interview with me late last year, and the conversation stuck with me. The most surprising part of our discussion was that Ferri, a dyed-in-the-wool indexer, believes that investors don't necessarily need to use passively managed investments for their portfolios. He noted that your philosophy could be that you can pick out active managers who can outperform, that you could index, or that you can adjust your portfolio's asset allocations tactically over time. What's really important, he said, is that you have a philosophy that makes sense to you and that you believe in--and that you then create a strategy which you would execute with discipline.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.