At Paradigm Norton they believe that money matters, but life matters more. Money, and by extension investing, is important but you need to get your priority list right. Life matters more. Dan Atkinson Head of Technical and Deputy Chair of the Investment Committee at Paradigm Norton explains how getting this pecking order right reminds us that the role of money is to empower life.
The money in our life needs to be reliable and relatively boring – we want to use our ‘excitement budget’ on life after all. You could say this is our philosophy around money – it expresses how we view the world and the lens we make decisions through.
I believe that it is just as important to have an investment philosophy. A clearly defined, robust, way of viewing investing. An anchor when uncertainty – or just ‘shiny new ideas’ – comes along. A filter for the noise.
What is an Investment Philosophy?
Your Investment Philosophy is what underpins the portfolios that you have designed. It sets out the principles that you have used to get there and your house view on matters like:
- Are markets efficient?
- Should you have a home bias?
- Do you believe that a fund manager can generate alpha?
- Will you be indexing, active, systematic, or a mix?
- How important are costs?
- What degree of diversification is appropriate?
- How often should you rebalance?
- Is the goal outperformance, or is it risk adjusted returns?
- What asset classes are ‘on menu’?
- What is the role of ESG and sustainability?
You might even include some principles of how you will deal with market falls when they happen. Considering these things in the ‘good’ times we can do so rationally and without panic. Our investor behaviour is just as important as our clients’ investor behaviour – perhaps even more so.
Why does it need to be so detailed?
The money invested in line with our investment philosophy is what will fund our clients’ retirement, generosity, and legacy. It’s not just an academic exercise – it needs to be robust.
Seek out evidence and research – especially that of other perspectives. Look for robust, rigorously tested data, but avoid echo chambers. Make sure that your philosophy is built on firm foundations – not blind faith.
Whilst investing is far from certain we should be able to give a robust and reasonable explanation of where we stand.
How does it help?
The investment philosophy that you have decided upon should act as an anchor and a filter. It’s critical to helping clients stay the course and manage your stress levels when portfolios are under pressure.
- An anchor – it provides stability during market turbulence. Anchors don’t stop a ship from bobbing up and down, but they do stop it from drifting away. Our investment philosophy keeps us grounded and stops us making fear driven decisions when the headlines are screaming.
- A filter – it helps us tune out the noise. In a world where information comes at us from every angle it can be hard to make decisions. It can be hard to screen out the distractions and focus our attention. Having a clear investment philosophy enables us to be in an increasingly unpredictable world.
We communicate our investment philosophy to clients (and the team) when they join us, and on a regular basis. We refer back to them as an anchor to prepare for times of turbulence. And when those times come it has proven to be effective.
Abandoning ship in the middle of the storm is unlikely to be the right move. David Booth, Chairman of Dimensional Fund Advisers, helpfully said “The most important thing about an investment philosophy is that you have one you can stick with.” So stick with it.
How do we go about reviewing it?
As stewards of our client’s money, it’s important that we regularly review our investment philosophy. We need to re-examine the facts and the landscape on a regular basis.
We’ve found a two-pronged approach to be helpful.
- Each year we identify a different element to review in detail. This might be due to challenges, feedback, or opportunities. We examine its role within the asset allocation and how large the position should be. We then seek to understand the various strategies that exist for accessing the asset class. Then we consider whether a change is in our client’s best interest. These projects take time, but we’ve found this approach balances resources and, through our quarterly meetings, ensures due rigour is applied.
- Alongside this deep dive we review the overall portfolio structure to ensure that it is still working. This takes place as part of our standing agenda at the Investment Committee’s Annual General Meeting.
Good governance matters. The process is as important as the outcome. We need to be open to change, or no change, being the output.
How about you?
Can you clearly articulate your investment philosophy—on paper, not just in your head? When did you last review it? Make it a living document: write it down, test it, and revisit it regularly. If you can’t confidently answer these questions, now’s the time to act.
Investing places your capital at risk, and investments may fall or rise in value. Past performance is no guarantee of future returns. Paradigm Norton Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.
About Dan Atkinson
Dan Atkinson is Head of Technical and Deputy Chair of the Investment Committee at Paradigm Norton. Drawing on a Music Technology degree, he approaches financial planning challenges with creativity as well as precision, ensuring clients benefit from robust, forward-thinking advice that blends technical expertise with personal values.
A Certified Financial Planner™, Chartered Financial Planner and Accredited Paraplanner™, Dan is also a Fellow of both the Chartered Institute for Securities and Investment (CISI) and the Personal Finance Society (PFS).
