Thinking about investing – and your personal investment experience – is a task that people often put off because it is out of their comfort zone. We’ve broken it down into seven tips, putting the information into manageable pieces that are easy to digest. Here is how to pursue a better investment experience.
- Let markets work for you. Throughout history, the financial markets have favorably rewarded long-term investors. All investors expect a positive return on their money, and historically, the growth of the equity and bond markets has more than offset inflation.
- Practice smart diversification. You’ve probably heard the old adage, “don’t put all your eggs in one basket”. For investing, this means allocating assets across various sectors, in equities, bonds and funds. Diversification helps to reduce risks and broadens your investment universe.
- Avoid market timing. Trying to predict the top or bottom of a market to buy or sell to maximize return and avoid losses is market timing. To be effective, you need to know what is going to happen in the future and be right twice – when to get in and when to sell. Given that nobody can know which markets will outperform at any given time, it is better to hold a diversified portfolio. Then, investors can capture returns whenever and wherever they occur.
- Don’t try to outguess the market. Those who try to outsmart other investors, including mutual fund managers, through stock picking or market timing, find that the market’s pricing power works against them. For instance, only 19 percent of US mutual funds have survived and outperformed their benchmarks over the last fifteen years.
- Focus on what you can control. So much of investing is out of a person’s control. A financial advisor works with you to create a plan based on your personal financial needs, focusing on actions that add value. Making a plan with a qualified professional leads to a positive investment experience.
- Look beyond the headlines. Cable and broadcast stations, along with financial publications make money by selling advertising, not by giving solid financial advice. Real investing is about following your plan, not following the latest trends based on the whims of the media. Always consider the source and maintain a long-term perspective.
- Resist chasing past performance. It’s tempting to invest in mutual funds based on past returns. Funds that have outperformed in the past do not always persist as winners. For example, between 2000 and 2009, only 682 funds outperformed their benchmarks in the first ten years. From 2010 to 2015, only 191 of those funds continued to outperform their benchmarks.
Investors benefit from working with a financial professional. If you have any questions about the tips listed here or would to set up a one-on-one meeting so you can have the best investment experience of your life, please call us at 630-896-7770. We’re happy to help in any way we can.