This week we have Ben Brinkerhoff, Head of Advice at Consilium here to talk about how you can improve your chances of success in investing. We’ll break down 10 straightforward principles that can help you become a better investor.
Go with the Flow – Embrace Market Prices
Investing is not about trying to outsmart the market. It’s about accepting market prices as they are, without trying to predict or manipulate them. By embracing market pricing, you avoid the stress of constantly chasing after elusive opportunities.
Don’t try and out guess the market
The market’s pricing power works against fund managers who try to outperform through stock picking or market timing. As evidence, only 17% of US-domiciled equity funds and 14% of fixed interest funds have survived and outperformed their benchmarks over the past 20 years.
Avoid Chasing the Past
It’s tempting to invest in something just because it had great returns in the past. However, past performance is not a reliable indicator of future success. Instead, focus on a well-thought-out investment strategy that aligns with your goals and risk tolerance.
Let Markets Work For You
The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation over the long term.
Know What Drives Returns
Successful investors understand the factors that influence their investments. These factors include economic conditions, trends in specific industries, and the financial health of individual companies. Knowing what drives returns allows you to make informed decisions and adjust your portfolio accordingly.
Mix It Up – Diversify Wisely
Diversification is like not putting all your eggs in one basket. It’s about spreading your investments across different types of assets, like stocks and bonds, to reduce risk. However, remember that diversifying too much can dilute your returns, so choose a mix of investments that suits your financial objectives.
Stay Away from Timing
Market timing involves trying to predict the perfect moment to buy or sell investments. This is a risky strategy because even experts often get it wrong. Instead, consider setting up a regular investment plan where you contribute a fixed amount regularly, regardless of market conditions, which can help you avoid making impulsive decisions based on emotions.
Keep Your Emotions in Check
Emotional reactions to market fluctuations can lead to impulsive decisions. Successful investors stay disciplined and focused on their long-term goals, rather than reacting to short-term market ups and downs. Remember, patience can be a valuable asset in the world of investing.
Look at the Big Picture
Don’t just focus on how individual investments are performing. Consider the broader context, including taxes, fees, and inflation. These factors can significantly impact your overall returns and financial well-being.
Control What You Can
While you can’t control the direction of the market, you can control your investment strategy, risk tolerance, and financial planning. Focus on what you can manage and make informed decisions based on your individual circumstances and objectives.
