Many people believe that successful investing happens from an ability to pick the right stocks, to time when to buy and sell and from making predictions about what is going to happen and when.
I cannot deny that some people have been lucky and have had success from making the right bets at the right time. Of course, the process of doing that and it working out can be exciting. But is it a sustainable strategy? Is it possible to do it consistently? Is there a better way?
As George Soros said “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” Boring investing can also be far simpler and a lot less work.
When it comes to investing you can never eliminate risk and whilst nothing is guaranteed you can increase your chances of success by considering these 10 simple guidelines:
Invest, don’t speculate
Often the noise in the media can encourage us to make short term investment decisions. This is not investing, it is speculating and few succeed when doing this.
Have a long-term view
Over time capital markets will provide a positive return and by risking your capital in the market you can share in that gain. You have to remember though, the return may not be there every day, week month or even year.
Let the markets work for you
The price of a stock at any given time represents the collective view of millions of investors based on current information. Rather than trying to second guess the market, work with it and let it work for you.
Avoid market timing
You never know which markets will perform best from year to year. Trying to time markets is proven to be very difficult and can be an expensive mistake if got wrong. Instead be well diversified, as holding as much of the market as possible will allow you to capture the positive returns whenever they appear.
Consider the drivers of expected returns
Academic research has shown that by weighting your portfolio to certain dimensions (or factors) of investing that you can add additional returns to your portfolio over the medium to long term.
To be considered as a “dimension” of investing, the evidence must show that it is pervasive across different markets and persistent across different time periods. It is sensible to build your portfolio around these dimensions.
“Diversification is the only free lunch in investing”
As said by Nobel prize winning academic Harry Markowitz. Not only is it free, diversifying your portfolio across different stocks, sectors and geographies can enhance returns and reduce risk in your portfolio over the long-term.
Keep calm and manage your emotions
It can be all too easy to let your emotions guide your investment decisions. Greed can lead you to invest when markets are high and fear can mean you sell when markets are low. Keep calm and remain realistic.
Don’t react to the news
The media focusses on the short-term and this can give you a distorted influence of the markets. Keep up with the news, but you don’t have to base your investment decisions on it.
Keep costs low
As with diversification, cost is one factor of investing you can control and you don’t want to let high investment costs spoil your returns. All investments have costs, but as funds with higher costs have to overcome these expenses their performance will often suffer versus lower cost alternatives.
Control what you can
You can’t control the markets but in working with a good financial advisor you can build a portfolio that controls costs, provides diversification and is aligned with your risk tolerance, your goals and your objectives.
These are tips that you can use yourself but if you feel you require help then you should consult a financial advisor for professional advice. A good fee based advisor (someone registered with fiduciary responsibility) will not only help you to build a portfolio they will provide peace of mind when times are uncertain, they will help you to block out the noise and to focus on what is important and they will help you to have a positive investment journey.
Simon Parfitt – Pyrmont Wealth Management, Hong Kong – firstname.lastname@example.org