20 simple, but obvious, reminders about sound investing
With so much uncertainty flying around I thought it might help to remind ourselves of some fairly simple, and some would say obvious, advice on investing.
Sometimes as investors we need to be reminded of the simple and obvious stuff as it is often forgotten amongst all the noise, opinions, and predictions that are out there!
P.S. I’m no different…I still need to remind myself!
- If you need to spend your money in a relatively short period of time it doesn’t belong in an investment portfolio linked to the stock market.
- If you want to earn higher returns, you’re going to have to take more risk.
- If you want more stability, you’re going to have to accept lower returns.
- Any investment strategy with high expected returns should come with the expectation of ups and downs. The more risk the bigger the ups and downs.
- A good investment strategy will always have periods when it falls in value. During these times it doesn’t become a bad strategy.
- Risk can change shape or form, but it never really goes away.
- There’s no such thing as a perfect portfolio, asset allocation or investment strategy.
- No investor is right all the time.
- No investment strategy can outperform at all times.
- “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.
- If you invest in index funds you cannot outperform the market.
- If you invest in active funds there’s a high probability you will underperform index funds.
- If you are a buy and hold investor (as we are) you will take part in all of the gains but you also take part in all of the losses.
- For buy and hold to truly work you have to do both when markets are falling (i.e. rebalancing your portfolio)
- Proper diversification means always having to say you’re sorry about part of your portfolio.
- There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.
- Compound interest is amazing but it takes a really long time to work.
- Sound investment advice doesn’t really change all that much but most of the time people don’t want to hear sound investment advice.
- Successful investing is more about your behaviour and temperament than your IQ or education.
- Don’t be surprised when we have bear markets or recessions.
Jake DeKinder, Head of Advisor Communication at Dimensional, succinctly explains how capital markets have rewarded investors who are able to tune out short-term noise and stay disciplined over the long term.