When it comes to the financial world, things can get complicated very quickly. If you Google “investment principles,” you are going to get an exorbitant amount of advice, some of it even contradictory. So how can you tap into the secret of investing with the overload of information out there? How do you invest in a way that will help you build wealth smarter?
Here is what I believe to be ten simple rules in real terms. Rules that, if you follow them, could result in a better investment experience.
1. Market Pricing Exists for a Reason
When you see the price of a stock, what you don’t see is the entire process that went into setting that price. In 2015, around 99 million trades took place daily, with a dollar volume of around 447 billion. What these numbers tell us is that buyers and sellers are continually setting the market prices for stocks, and we can rely on these prices to be fair.
Instead of trying to prove thousands of professional analysts with powerful resources at their fingertips wrong, embrace market pricing and save yourself time and energy for the things you love.
2. Don’t Try to Beat the Market
In investing, the long-term is what matters. While a select few mutual funds might outperform their benchmarks in any given year, over time we see that this outperformance usually doesn’t last.
No matter how hard they try, even the most highly educated and experienced financial analysts have no way of knowing what the markets will do on any given day. While we may hear stories of people who have found incredible success through the stock market, those who accurately time the markets are very lucky and very rare. If you want to see growth in your portfolio through the stock market, stick to your investment strategy and ignore the short-term noise.
3. History Doesn’t Always Repeat Itself
On that same token, don’t make your investment decisions only based on past performance. Just because a mutual fund blew everyone away last year doesn’t mean it will thrive this year.
4. Let the Markets Work for You
In general, investors who hold tight to a long-term perspective and stay committed to their investment philosophy will more likely see growth in their portfolio. History tells us that the markets have provided enough growth to beat inflation, so sit tight and let the market work for you.
5. Know What Drives Returns
Academic research has identified certain factors that may help you get the best return for your investments:
- Stocks vs. Bonds: How you allocate your portfolio between stocks and bonds will have the biggest impact on your returns (and risk).
- Company Size: Stocks of smaller companies (“small-cap stocks”) have historically had higher returns when compared to their larger brethren (“large-cap stocks”).
- Value Stocks: Stocks can be broadly divided into value stocks or growth stocks. Historically, value stocks have outperformed their more flashy growth-orientated peers.
- Profitability: Companies with higher profitability tend to have higher returns, over time, compared to lower-profitability companies.
If you focus your portfolio toward these known factors, you may have a higher probability of better returns.
6. Broaden Your Investments
It’s drilled into us pretty regularly that we need to diversify our portfolios (in fact, that’s one tip you’ll probably see on any smart investment principle list). But what many don’t realize is that it’s not enough to diversify only within your own country. The U.S. counts for about half of the global market’s capital, so if you don’t diversify internationally, you’re missing out on some significant opportunities.
7. Timing the Market Won’t Help You
This is similar to #2 and #3. While there are market trends we can follow, the markets are anything but predictable. You will only cause yourself undue anxiety by trying to forecast what will happen next. Turn your focus to ensuring that your portfolio is globally diversified, and you will very well reap the rewards wherever and whenever they occur.
8. Manage Your Emotions
Behavior is a major factor in investment success. By being aware of your emotions and knowing your behavioral pitfalls, you can avoid many investment mistakes caused by panic. Finances are an integral part of our lives, so I understand how difficult it is to separate the two. Turn to an advisor to help you stay strong and committed when the market feels like a roller coaster.
9. Ignore the Media Hype
Media headlines often play off of our emotions, causing us further distress than we might have already had. The news can blow things out of proportion and cause us to veer from what we know is true and wise. If you have a set investment philosophy and strategy, you will be less inclined to fall prey to sensationalized headlines.
10. Control What You Can
Since you can’t control the market no matter how hard you try, work on clarifying your goals and needs and work with an advisor to create a plan tailored to your unique situation.
Investing doesn’t have to be complicated, and it doesn’t have to scare you. If you want to pursue a better investment experience, implement these tips into your investment strategy and you may improve your chances of better investment returns and a secure financial future. At Archer Investment Management, we hold true to these ten rules and value disciplined, unemotional, and highly-diversified investing. You will receive objective advice from us as we work together to customize an investment plan for you. If you have any questions about these tips, click here to schedule a phone call. I’d love to hear from you!
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.