So many conversations today are tied to the news. Everyone is talking about the troubled economy, inflation, and the tumbling stock market.
How should you change your investments in light of all these issues?
You may be wondering if you are invested too aggressively, or you might even be considering pulling out of the market and waiting out the storm.
Before you rush in to change your investment tactics, listen to this episode to learn 10 investing principles to help guide your decisions.
10 Fundamentals to Guide your Investment Choices
Everyone who invests wants to achieve higher return rates, but before you can do that it is important to think about your investing philosophy. If you know the basics of investing then you’ll be able to separate yourself from the rest of the pack. Developing a well-thought-out plan is easy, but it can be hard to stick to when the market is volatile. Learn these fundamentals to ensure you make the best investment choices.
- What are your goals? Consider what the money is for. Money needed in the short term should be invested differently than money for the long term. Understanding your desired outcome can help you develop your investment philosophy and come up with a feasible investment plan.
- Do you want to own something or lend money? People often overlook the basics of investing. Stocks are ways to own portions of companies. Bonds are loans to organizations. Understand what you are investing in before investing in it.
- Check your investor behavior. When the market goes haywire investors often start tweaking their portfolios based on the market conditions. However, the reality is that the more adjustments you make, the worse your long-term results will be. Investing should be boring–don’t make it exciting! Ignore the fads and stay consistent.
- Avoid market timing. The market can turn faster than you realize. There has only been one consistency among bear markets: they all end. Being right about something and making money off of it are two different things. To accurately time the market you have to be right twice.
- Reconsider your philosophy about market declines. Many people worry about falling markets, but those drops create an opportunity to buy at reduced prices. Market declines are the fee we pay for higher returns. The best thing that you can do when the market takes a tumble is to stick to your plan. Listen in to hear the worst thing you can do in a market downturn.
- Diversify your portfolio. A well-diversified portfolio will always contain something that you don’t like. Find out why Mike thinks this is so important.
- Plan your portfolio. As Morgan Housel says, the best investors are short-term pessimists and long-term optimists. Money needed in the short term should be invested conservatively–try using high-quality bonds. Retirement and other long-term investments should growth focused by investing in stocks.
- What benchmark should you compare yourself to? The only benchmark that really matters is whether you are on track to reach your financial goals.
- Actual investor returns are based on simple factors. 90% of your returns will be driven by a few key principles listen in to discover what they are.
- Think in decades not days. Don’t worry about the market today–it only clouds your judgment.
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Outline of This Episode
- [3:12] What is your money for?
- [6:20] Investor behavior plays a huge role
- [10:33] What to do in market declines
- [15:48] What benchmark should you be using?
- [18:50] What opportunity means
- [20:58] Today’s progress principle