Good investing isn’t complicated.
It’s not about outsmarting or outworking everyone else. A lot of it comes down to avoiding mistakes and repeating good habits.
As a Chief Investment Officer of over $6 billion dollars, here are 10 important things you should know about investing…
1. Good investing is boring.
Like watching grass grow or paint dry. There will always be a trendy stock or intriguing private opportunity. There are no shortcuts to wealth. Most investment success comes down to minimizing mistakes that interrupt compound interest. If your investments are getting you excited (in a positive or negative manner), then you are doing it wrong.
2. The more you check your portfolio, the harder it is to stay the course.
The Digital Age has made access to real-time portfolio values increasingly easy, but research shows that people checking the market or their portfolio most frequently earn lower returns.
3. Time is more important than timing.
Everyone wants to buy and sell at the perfect time. However, one of Wall Street’s best kept secrets is the amount of time you stay invested is far more important than perfectly timing market movements (which is impossible anyway).
4. Nobody can consistently beat the market.
There are millions of investors in the world and the competition for returns is higher than you realize. Only a very small handful of investors are capable of beating the market and they don’t take money from even the wealthiest investors. The allure of beating the market is great, but don’t be fooled.
5. Automation is your friend.
More than 40 percent of the actions people perform each day are driven by habit rather than actual decisions. The benefits of automation align with the human tendency to embrace habits and resist change.
Automating your investments wherever possible (via technology or a human advisor) helps you achieve goals more easily by creating positive long-term habits while fighting the temptation to deviate from your investment plan.
6. Losses are a necessary part of investing.
One of the first things to accept as an investor is you’ll occasionally lose money – sometimes a lot of money – on the way to earning a decent return. This is part of the risk you bear in exchange for higher expected returns on your investments. The good news is you can reduce the chance of permanent loss by staying invested over a long period of time.
7. Be skeptical of investments that recently soared in price.
A thoughtfully-crafted financial plan should not require an investment to go completely bonkers for you to reach your goals. Also, keep in mind that periods of above-average performance are usually followed by below-average returns.
8. This time is not different.
Viewing the world through this lens almost guarantees investment mistakes. History often rhymes. Human nature hasn’t changed in tens of thousands of years. The world is always changing, but good advice tends to stay the same.
9. Focus on what you can control.
You can’t control when the next recession will hit. You can’t control how your investments perform. You can’t control the big political, economic, and societal issues facing our planet…Things you can control such as savings rate, asset allocation, fees, and your investment behavior deserve substantially more attention.
10. In school, you are given a lesson, then a test. In investing, you are given a test and then you learn a lesson — and investing lessons can be expensive.
Most people don’t receive a formal education on investing, so they unknowingly make mistakes that go unnoticed because they don’t have the right tools to truly evaluate their performance.
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Research from Vanguard estimates financial advisors can potentially add roughly 3% in relative return for an individual investor.
But don’t just hire someone for investments; choose an advisor that provides comprehensive financial planning so you can get your entire financial house in order by proactively assisting with tax projections, estate planning, insurance analysis, and more.
Working with an advisor also frees you up to do the things you love most in life, and alleviates the stress of managing financial matters on your own.
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