Why is an Investment Philosophy Important to Your Portfolio (and What’s Ours)?

If you spoke to one hundred different wealth management firms, you might hear 100 different investing approaches. Because markets are ever-changing, there is no perfect formula for investing success. However, a sound, data-driven, and disciplined investment philosophy can set you up to achieve your retirement goals. Continue reading to learn more about our investment philosophy at The Dala Group.

What is an Investment Philosophy, And Why Does It Impact You?

An investment philosophy is a set of beliefs that help inform an investor's approach to the market. It’s not a list of strict rules but rather a goalpost that guides investment decisions.

A philosophy underpins the creation and management of your portfolio and, as such, greatly influences your relationship with an advisor. You want to work with an advisor with a clear investment philosophy whose strategy resonates with your goals and values.

At The Dala Group, our investment philosophy is based on years of historical market data that demonstrates the economy’s resiliency even in the face of many setbacks. To help illustrate this point, look at the historical trends for the S&P 500 benchmark over the years. While it has its ups and downs, many people see strong returns over the long term.

When you have an investment philosophy to help guide your investment choices, you can ignore the ever-present white noise from financial media and friends, family members, co-workers, and neighbors. If a potential investment does not fit with our philosophy, we can ignore it and move on.

How We Approach Investments At The Dala Group

Several pillars can work together to comprise your investment philosophy. For us, the essential ones are:

• Time Horizon

• Strong Companies

• Buy & Monitor Approach

• Tax Efficiency

Time horizon is critical for any investment decision. There has to be a specific purpose or goal for any investment account, and with that, there should be a timeline of when you need the funds.Why is a clear time frame necessary?It better informs the suitable investment vehicles and allocations for your particular need. If you’re investing for a down payment on your dream home and have a five-year goal, that portfolio will look vastly different from your retirement account that needs to sustain decades worth of income.When it comes to individual stock selection, our experience has shown that strong companies make for strong investments. To identify strong companies, we focus on:

1. Revenue Growth

2. Operating Cash Flow Growth

3. Little-To-No-Debt

4. Reasonable Price To Sales Valuation (compared to peers within the same sector). 

These key data points allow us to make informed decisions on buying, selling, or holding a specific investment. Most investors have heard of the term “buy & hold investing.” With this philosophy, you purchase an investment and hold it for an extended period. Our approach aligns with this general mindset as we invest in companies that we believe are long-term holds. But markets have a knack for changing, and we’re more than prepared to monitor that change and adjust as needed. We always strive to make the best investment decisions for our clients, no matter the market condition.Our buy & monitor approach allows us to buy investments with conviction while also monitoring the performance of those holdings. If an investment choice from a previously-held thesis is not passing our analysis, we will make changes to our client’s portfolios.One of our last and most vital tenants within our investment philosophy is tax efficiency. Tax-efficient investing works to minimize taxes while maximizing returns. Proactive tax-efficient investing is a complex and diverse area of personal finance, one that we are excited about bringing to our clients. Here are a few specific tactics we consider. 

1. We find that, in general, aggressive Roth IRA allocations maximize tax-free growth. 

2. We keep a close eye on investments suitable for clients’ non-retirement accounts. The goal is to minimize interest, non-qualified dividends, and capital gain distributions to keep taxable income as low as possible. 

3. We leverage tax-loss harvesting within clients’ non-retirement accounts. With this strategy, we can reduce capital gains and potentially offset up to $3,000 of your ordinary income 

4. Finally, we leverage tax-gain harvesting within clients’ non-retirement accounts. We can potentially sell an investment with little to no tax due on the growth with this strategy.

Active vs. Passive Investment Management

What’s the difference between passive and active investment management? Passive investment management broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons, with minimal trading in the market. Active investment management requires constant monitoring, more active buying & selling, and seeks returns that exceed the performance of the overall markets. At The Dala Group, we tend to use both! Our investment philosophy uses a core and satellite model. In this approach, we incorporate a passive management strategy for the core portfolio and active management for a smaller portion of the portfolio (the satellite). For our core portfolio, we simply include index funds and ETFs. In comparison, our satellite portion includes index funds, ETFs, mutual funds, and individual companies.

Lay A Strong Financial Foundation

An investment philosophy is only as strong as the financial plan it supports. Your goals and values drive the financial planning and, therefore, the investment management process. It’s essential that we deeply understand those two elements before implementing any investment recommendations. No two investment plans are identical because no two financial plans are identical. We are passionate about developing unique and tailored investment strategies that put you on the path toward your goals. A firm knowledge of your financial picture equips us with the tools to help build your plan and provides you, the investor, with the confidence to stick with it long-term. Would you like to learn more about our investment philosophy and how it could benefit you? Reach out today.