What I’ve learned from reviewing hundreds of investment portfolios…
Ever wondered what it takes to be a successful investor?
The essence of investing is not about getting lucky with the latest investment type, finding an advisor who can time the market, or unraveling some secret to success…
In this video, Chris Merchant CFP® discusses some of the fundamentals of investing that have been shown to be effective time and time again.
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What I’ve learned from reviewing hundreds of investment portfolios.
By: Chris Merchant, CFP®
“As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.” –Emerson
When it comes to investing, the actual method in which you choose to invest (like stocks, ETFs, or index funds) is far less important than the principles you follow.
In other words, successful investors’ secrets lie not in the methods they use, but in the principles to which they adhere. If you want to be successful as an investor, it pays to spend time learning about good investment principles.
As new investments become available, the methods of investing will change accordingly, but the principles that are predictive of investing success always remain the same.
For example, when mutual funds were initially introduced, they represented a brand new way to invest. Other ways, such as index funds and exchange-traded funds, have also emerged over time. Although new methods appear and perish all the time, the fundamentals of investing remain constant. The idea of diversification—which is just as important now as it was when mutual funds first appeared—is an illustration of this.
Making investment decisions can be difficult, but by following a set of principles, you can ensure that your choices are based on logic rather than emotion. These will also help protect you from getting caught up in the newest fad or succumbing to a sales pitch. And taking the time to understand and build a strong financial strategy based on timeless financial principles can help you weather the storms that inevitably come with investing in the markets.
Nine Essential Principles for Investment Success:
You can leverage these timeless principles to potentially improve your investment results regardless of the category of investment you use. They work for stocks, ETFs, mutual funds, index funds, and whatever is yet to be invented.
- Diversify your portfolio
- Invest for the long term
- Don’t try to time the market
- Don’t make decisions based on emotion.
- Keep costs low
- Be mindful of inflation
- Use risk to your advantage
- Keep your investment strategy simple
- Be patient
Let’s explore these in more detail…
- Diversify your portfolio.
One of the main benefits of diversifying your investment portfolio is that it helps to reduce your risk. By spreading your money out among a variety of different investments, you’re less likely to lose all your money if one of your investments tanks.
Diversification can also help you to achieve a more consistent return on your investment. When some investments are doing well, others may be lagging, which helps to balance out your overall returns.
Overall, diversifying your portfolio is a smart way to reduce your risk and achieve a more consistent return on your investment.
- Invest for the long term
When you’re investing for the long term, you’re thinking about the future and how your investments will grow over time. This is a more strategic way to invest, as it allows you to take advantage of compound interest.
Compound interest is when your investment earns interest on top of the original investment, and then that interest also earns interest. This will help your investments to grow exponentially over time, which adds up to a lot of money over the years.
By investing for the long term, you’re giving yourself the opportunity to take advantage of compound interest and watch your investments grow.
- Don’t try to time the market
Attempting to time the stock market is a bad idea for a few reasons. First, it’s impossible to know exactly when the market will go up or down. You may think you have it figured out, but more often than not you’ll be wrong.
Second, timing the market can lead to emotional investing. When you’re trying to time the market, you’re more likely to make decisions based on fear or greed, which can lead to poor investment choices.
Finally, by trying to time the market, you’re essentially gambling with your money. There’s no guarantee that you’ll make a profit by buying and selling stocks at the right time. In fact, you’re more likely to lose money this way.
For these reasons, it’s generally advised that investors avoid timing the stock market and instead invest for the long term.
- Don’t make decisions based on emotion.
Making emotional decisions with your investments can be a big mistake. When you’re making decisions based on fear or greed, you’re not thinking objectively, and you’re more likely to make poor choices.
For example, if you’re fearful of losing money, you may sell off your investments at a loss instead of holding onto them. Or, if you’re greedy and want to make a quick profit, you may purchase stocks at inflated prices without doing your research.
Emotional decisions can also lead to decision paralysis. When you’re trying to make a decision based on emotion, you may get overwhelmed and start to second-guess yourself. This may lead to indecision and prevent you from taking any action at all.
To avoid these pitfalls, it’s important to make decisions based on reason and logic, not emotion. Try to stay calm and detached when making investment choices, and be prepared to act on what’s best for your portfolio, not what’s best for your emotions.
- Keep costs low
When it comes to investing, one of the most important things to keep in mind is your costs. The lower your costs, the more money you’ll have to compound over time.
There are a few different ways to keep your investing costs low. First, have a preference for low-cost versions of the investment options you’re considering. Also, general index funds or exchange-traded funds (ETFs) typically have lower fees than other types of investments.
Second, don’t trade often. Trading can lead to higher costs, as you’ll be paying commissions and potentially taxes each time you make a trade. Instead, try buying and holding stocks for the long term. This will help you avoid high trading costs and will keep your expenses down.
By keeping your costs low, you’ll be able to maximize your returns and grow your investments over time.
- Be mindful of inflation
In order to protect your money from inflation, it’s important to invest it in assets that will grow at a rate that exceeds inflation. This can be done by investing in stocks, bonds, and other types of investments that have the potential to provide a higher return than inflation.
If you don’t invest your money, it will lose value over time as inflation increases. By investing your money, you will ensure that it grows at a rate that outpaces inflation, allowing you to maintain its buying power.
Investing is one of the best ways to beat inflation and protect your money from losing value. By choosing the right investments and staying patient, you can grow your money while keeping your costs low.
- Use risk to your advantage
When it comes to investing, it’s important to take risks in order to grow your money. However, you don’t want to take too much risk, as this can lead to losses.
Instead, you want to find the right balance of risk and reward that will help you reach your investment goals. This means taking on enough risk to provide a higher potential return, but not so much risk that you’ll lose money.
There are a few different ways to do this. One is to invest in a mix of stocks, bonds, and alternative investments. Stocks provide a higher potential return but are also riskier than bonds. By investing in a mix of stocks, bonds, and alternative assets, you will spread your risk out and potentially reduce the chance of losing money.
By understanding the level of risk with which you’re comfortable and investing accordingly, you can use risk to your advantage and grow your money over time.
- Keep your investment strategy simple
One of the keys to successful investing is keeping your investment strategy simple. This means sticking to a few basic investments and not trying to do too much.
By keeping your investment strategy simple, you’ll be able to make better decisions and avoid costly mistakes. You’ll also be able to stay focused on your goals and remain disciplined with your investments.
Furthermore, by keeping things simple, you’ll be able to invest more time in learning about investing and less time managing your portfolio. This will allow you to make wiser choices with your money and potentially achieve better results.
So, if you’re looking for success in investing, keep your investment strategy simple and focus on the basics.
- Be patient
Being patient is one of the most important qualities for a successful investor. If you’re not patient, you’ll be more likely to make rash decisions with your money and could end with poor results.
Instead, try to be patient and think things through before making any investment decisions. This will help you to avoid costly mistakes and stay focused on your goals.
So, by being patient, you can make more money with your investments and reach your financial goals faster.
Conclusion
It’s important to remember that no matter what the investment or security, following a strong set of principles is always the key to success.
The principles we outlined are based on long-term financial planning and investing for retirement. If you can stick to these guidelines, you will be in good shape for reaching your goals.
Of course, everyone’s situation is different, so please consult with a financial planner or investment advisor to get personalized advice for your unique needs.
ABOUT US SECTION:
For those of you new to our content, my name is Chris Merchant, CFP®. I am the founder of Hunt Country Wealth Management. My firm and I are dedicated to serving the distinguished needs of today’s modern retirees nationwide. We strive to help YOU experience the freedom and independence of a well-planned retirement.
If you’re interested in learning more about stock market investing, I invite you to purchase my book called On Investing Well – The Elements of Good Investing. There, I discuss how to create a sound investment strategy and why investing principles are so important.
If you are close to retirement, I invite you to download our Free Retirement Guidebook™. In this resource, we help you understand the single most important shift you need to make before you retire.
Thanks for reading!
DISCLOSURE
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. This information is not intended to be used as specific investment advice as many of the concepts presented are for discussion only. This information is not an offer to purchase any specific security. Please consult a financial professional prior to engaging in any strategy to determine if it is appropriate given your personal situation.
