When so many conversations today are about the economy, inflation, and the stock market, it’s normal to wonder if you should change your investment strategy. You might wonder if you are investing too aggressively, or you might even think about pulling out of the market and waiting until things feel calmer. Before you decide to adjust your strategy, listen to this episode to learn 10 fundamentals to help guide your investing decisions.
10 Fundamentals That Guide Your Investing Decisions
Every investor wants to achieve higher return rates, but before you can do that, take some time to think about your investing philosophy. Knowing the basics of investing makes it easier to separate yourself from the rest of the pack. Developing a thoughtful plan is easy, but sticking to it even when the market is volatile is often more difficult. Here are some fundamentals that can help you make the best investment decisions.
- What are your goals? Consider what your money is for. The money you need in the short term should be invested differently than the money you need in the long term. Understanding your desired outcome can help you develop your investment philosophy and come up with an investment plan that works for your needs.
- Do you want to own something or lend money? Many people overlook the basics of investing. Remember, 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, many investors 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! Try to ignore the fads and stay consistent with your plan.
- Avoid market timing. The market can turn faster than you may think. 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. If you find yourself worrying about falling markets, remember 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 stay true 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 by listening to the podcast.
- Plan your portfolio. As Morgan Housel says, the best investors are short-term pessimists and long-term optimists. The money you need in the short term should be invested conservatively–try using high-quality bonds. Money for retirement and other long-term investments should be growth-focused by investing in stocks.
- What benchmark should you compare yourself to? The only benchmark that truly 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 this podcast episode 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
Resources & People Mentioned
- Download the General Investing Principles Guide
- The Founders podcast
- BOOK – Stocks for the Long Run 6th edition by Jeremy Siegel
- Morgan Housel
