Defining Your Investment Philosophy


When asked to describe what their investment philosophy is, many investors will respond with an answer tied to their level of risk. Oh, I’m a gambler some might say. Or another may say, I don’t like a lot of risk, but I know I need to invest in the market. There are any numbers of answers that may come along those lines.

The reality is however that an investment philosophy has more to do with the way you believe investing should be done keeping a long time horizon in mind.

Short-term vs Long Term

An investor with a short term time horizon may be more likely to attempt to achieve returns based upon tactical asset allocation and playing hunches about market movement. Additionally, someone with a shorter time horizon would likely be more interested in strategies to short the market and pick stocks based on sectors they feel will likely be impacted by economic trends. While in the short term an investor or their broker can experience gains in a portfolio based upon this strategy, it is unlikely that a long-term investment plan using this strategy will succeed unless there are countless hours dedicated to research, analysis, tactical allocation strategies and quite frankly, a little luck. But this type of investing can actually be exciting and fun for the right type of individual, if they feel comfortable with the associated risks and costs that come with it.

For the long-term investor however, especially one who is counting on some reasonable predictor of the likely performance of a portfolio, investing like a short term investor for long-term results can be cause for many sleepless nights and a good deal of anxiety. Watching your lifetime retirement savings swing back and forth on a daily basis is not a fun way to relax and enjoy retirement. Many advisors who are dealing with long-term portfolios are likely to recommend some form of indexing strategy which tends to lower expenses since index investing reduces trading costs and offers broader diversification.

Do Markets Fail?

When determining an investment philosophy, perhaps the real question to ask is whether or not you believe that markets fail, or are they efficient? In other words, an investment philosophy really boils down to whether you believe you or your broker can or need be smarter than the market and can “beat” a certain index or benchmark with more savvy investment decisions, or whether you believe that the market gets you returns and you or your broker have little or nothing to do with the outcome. In fact, if it were possible for sophisticated investors and professional money managers to do exactly what I am describing, there would only be the need for one mutual fund, one money manager, and one Investment Company. But there is empirical evidence that this seems impossible since most of the large investment banking firms offer dozens upon dozens of mutual funds from which to select.

This style of investing relies upon the fact that in a zero sum game, an investor can come out ahead, if they are right more than 50% of the time in picking which way a stock, or a fund or the market will move and playing that hunch correctly. Belief in this investment philosophy causes an investor to stock pick, market time, and track record invest. Stock picking, track record investing and market timing are the keys to investing for millions who reply upon research and data to pick winners and losers. But is this a long-term strategy?

Are markets efficient?

The efficient market theory says that for the long-term investor, the goal is to achieve market returns. The only way to do that is to index all open markets and all asset classes and to let the market provide the returns. With the efficient market style of investing, the most critical issue is the determination of an investors risk tolerance, and that can be measured by knowing how much risk an investor is willing to assume for an expected rate of return. Concurrent with this philosophy is the fact that fixed income in the portfolio exists not to supplement returns, but rather to mitigate risk and the shorter and less volatile the fixed income portion of the portfolio is the better. Asset allocation starts in this style with the division of the portfolio into equities and fixed income with an eye towards the historical returns of asset classes rather than the track record of specific mutual fund managers or stock brokers.

The more aggressive an investor is, the larger the portion of the portfolio invested in equities. The more conservative the investor, the less portion of the portfolio invested in equities. But here’s the difference. The actual holdings in both portfolios are exactly the same. And why shouldn’t they be if the investor is simply seeking market returns and is not relying upon a fund manager to do anything more than rebalancing to the asset allocation appropriate for the accepted risk tolerance. In this scenario, there is a reliable and known method for making sure that both sides of the investment highway – the expected low as well as the expected high- now becomes predictable 95% of the time. It’s called standard deviation. The standard deviation of a portfolio will outline what is to be expected on both the upside and the downside 95% of the time. You may know it as the bell curve.

Once the standard deviation of an investment portfolio is known, and assuming the portfolio is designed to be rebalanced regularly within the scope of the deviation as opposed to trading to beat a benchmark, the only thing left to do is to test the tolerance of that portfolio against inflation adjusted income needs to see if it will withstand the desired income withdrawals required. If that can be done, an efficiently designed investment portfolio is more likely to deliver great results over the long term.

The Problem

In our microwave, 24 hour news, phone app, internet based society it becomes very tempting to forget the discipline required to stick with a properly diversified and balanced investment portfolio. The media and opinion makers as well as the advertising wizards are extremely adept at convincing us to look for quick fixes, get rich quick schemes and do it ourselves solutions to our investing needs. Often, a portfolio that is designed to work over the long-term by living within the investor’s acceptable risk parameters does not provide the adrenaline rush of exciting trading stories or hot stock winners. Yet, the academic modeling that has gone into the development of Modern Portfolio Theory and disciplined long-term investing suggests that the larger and more important factor should outweigh the desire for a great gain on a hunch. It may not be sexy, but in the end once you understand what you are doing with your portfolio and why, you might feel a little more confident that you can take some play money and try your hand at the other strategies just for fun. For wealth building and retirement income, perhaps it is better to leave that to the global market and a well constructed portfolio that provides you with market returns within your acceptable level of risk as measured by the standard deviation in your portfolio.


By Philip C. Gallant, CLTC

Philip C. Gallant, CLTC is the President of Optimus Wealth Management Group, Inc., and Managing Partner of The Optimus Group, LLC.

Optimus Wealth Management Group, Inc., is a fee only Registered Investment Advisory Firm. Mr. Gallant focuses his practice on investor coaching, retirement Income, wealth management and estate planning.

The Optimus Group, LLC was founded in 2006 by Philip C. Gallant, CLTC. Philip Gallant has been in the financial services industry since February of 1980.

After having served as an agent and sales manager for two major life insurance companies, Mr. Gallant became the National Sales and Marketing Director for Long-Term Care Insurance at John Hancock Life Insurance Company, located in Boston, Massachusetts. During his tenure at John Hancock, Mr. Gallant worked extensively to train thousands of John Hancock representatives about the growing problem of long-term care financing in the United States. His expertise and success lead to rapid advancement at John Hancock where he eventually was appointed Brand Manager for Long-Term Care Insurance, responsible for oversight and coordination of product development, marketing, branding and sales.

Mr. Gallant was also responsible for developing supplemental distribution strategies and initiatives at John Hancock, which resulted in the product being offered through investment brokerage firms, banks and other financial distribution networks.

In 1992, Mr. Gallant became Group Vice President and National Marketing Director at New York Life Insurance Company in New York City, New York. In this role, Mr. Gallant again was responsible for the sale of long-term care insurance throughout New York Life’s extensive network of General Agency distribution.

In 1997, Mr. Gallant joined New York Long-Term Care Brokers, Ltd., a nationally known and highly respected insurance brokerage firm located in upstate New York as Executive Vice President and eventually Chief Marketing Officer. During this time, Mr. Gallant also began to serve a growing clientele of his own, and has worked very closely with hundreds of people in the areas of financial, retirement, long-term care, college, business and estate planning. Having seen thousands of client situations where a different approach could be used to vastly improve their situation, Mr. Gallant decided to form The Optimus Group, LLC to assist both new clients and other financial associates in learning how to improve their financial planning situation.

As a noted author and respected authority in the long-term care planning field, Mr. Gallant was honored to be on the cover and was the subject of a feature story in Senior Market Advisor Magazine in November

2006. In addition he has written numerous articles for trade journals such as Broker World Magazine, Life Insurance Selling, Life & Health Advisor Magazine and more.

He has spoken before numerous consumer seminars and workshops in 46 states on the subjects of long-term care and retirement planning. He has been a main platform speaker at numerous industry symposiums and conferences such as The National Association of Health Underwriters, The NYS Bar Association, The Elder Law Forum, The Brookings Institute on Aging, The Society of Financial Services Professionals, The Association of Insurance and Financial Advisors, The Association of Financial Planning Associates and many others.

Mr. Gallant is a member of The Million Dollar Round Table, Court of Table, The National Ethics Bureau, the National Association of Insurance and Financial Advisors, The Capital District Association of Insurance and Financial Advisors, The American Association for Long-Term Care Insurance and holds his professional certification in Long-term Care (CLTC) from the Corporation for Long-Term Care.

Phil lives in Clifton Park with his wife, Michelle, and their favorite fuzzy family member, their dog, Riley. They also have five children.