5 Tips Towards Successful Investing

In This Video:

There is a lot of noise in our world.  That can make it tough when it comes to what you should and should not be concentrating on as an investor.  The stock market has shown us it has its ups and its downs, which can create a lot of emotions when investing your hard-earned money.  Covered in this video is what noise, thoughts, and information to IGNORE as an investor to help keep you on track towards long-term success.

Things To Consider:

Whether you are looking to get started in investing, already have a diversified portfolio in place, you manage your own investments, or you are working with an investment advisor, investing can create some emotional rollercoasters.  When putting your money on the line, nobody likes to see the value go down.  Nor do we like the feeling that we have missed out on something big.  When making the move to invest for your long-term financial or retirement plan, here are some areas that you want to ignore to help keep your plan on track and goals in sight.

Ignore Your Hindsight
A countless number of times I’ve heard people say: “I wish I would’ve invested in Google, Apple, Facebook, Tesla, _____.”, “I could’ve made thousands if I would’ve made the investment in _____ fund.”, “If only I would have started investing earlier.”, and “I wish I would have put more money into my 401(k), IRA, or Roth IRA.”

I’ve seen where these “would have”, “could have”, and “should have” thoughts consumes a person’s focus and keeps them sitting on the sidelines.  Whether you have been investing for a while or looking to get started, do not let the past alter what could be a great future.

Ignore the News
Being an investor and following the news can create an emotional rollercoaster.  One day you might hear everything is good and they predict a bull market.  The next day they are predicting the economy is falling apart and we could be looking at the worst bear market ever.  Whether it be on TV, on radio, in the paper, or on your phone, the job of the news is to get your attention.  That way they can advertise to you and generate more revenue for their company.

Next time you get caught up in the news and are thinking that you should make a change to your investments and long-term focus, ask yourself if the story is trying to educate you OR just grab your attention.  Talk it over with your advisor before making any sudden moves to your investment strategy.

Ignore Other’s Stories of “Big Winnings”
People love to brag when they do good.  Especially, when they made the right stock pick and made a bunch of money.  You may start to feel like you missed out or that you should hurry up and try whatever they did.  Just remember, while most people will tell you about their “big winnings” they rarely tell you about their losses.  If they truly had all the answers, wouldn’t they just be doing it full time?  Those that are doing it full time may or may not share with you all of the risks involved.

This is not to scare you away from investing or making some picks on your own.  However, learn what you can from other’s stories and do your own homework to understand all of the potential risks and rewards involved before changing your current investment strategy or making a decision to add new investments.

Don’t Try to Time the Market
I’ve heard a lot of stories from people that have said they “sold right before the crash”.  In most of these stories the storyteller conveniently leaves out when they got back in the market as, most likely, they are not sure how much they missed out on in stock market gains when the market rebounded.  Or, they were still sitting in cash after the market rebounded and had gain passed the point where they had sold.  In trying to time the market you have to make two right bets.

In 2008 Warren Buffett made a bet with a hedge fund manager.  The bet was that the S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years.  This bet was made right before the 2008 stock market crash.  In 2017, the hedge fund manager, and their strategy of making active picks trying to time the market, had considerably underperformed the S&P 500 index and they conceded before the bet was even over.1

It is time in the market, not timing the market that helps produce long-term returns.

Don’t Get Caught Up in Short-Term Performance Numbers
Whether it be 1 day, 1 month, or 1 year, when reviewing new investments or looking at your current holdings, there are going to be good days and bad days and good years and bad years.  In my opinion, for most investors, a long-term focus and long-term results are what matter.  Should you review to make sure your investments are tracking the appropriate indexes?  Sure.  But knee-jerk reactions to buy and sell based on short-term performance results may only harm your long-term success.

For example, let’s just take a look at the S&P 500 index and the swings that a person could see in 1 year.  Past performance is not indicative of future results.  In 2017, there was an intra-year drawdown (a decline from its high to its low) of 3%, but the index finished up 22% by the end of the year.  In 2019 there was an intra-year drawdown of 7% but finished up 32%.  Think about 2020 when the world was impacted by COVID.  We saw an intra-year drawdown of 34%, but the index finished up 18% by the end of the year.2 It is important to keep this in mind when seeing the day-to-day and year-to-year ups and downs.  Focus on the long-term.

We are emotional creatures, and these areas can sometimes be very tough to ignore.  Having a sound strategy and a long-term focus as an investor can help you towards long-term success.  If you are not sure what strategy to use or unable to manage your emotions, partner with someone to help guide you in your journey.

 

Sources:

  1. https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp
  2. https://www.calamos.com/insights/volatility-opportunity-guide/significant-intra-year-drawdowns-are-common/

 

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