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If investing excites you, you're doing it wrong


By Sam Instone - February 17, 2021

Market speculation has dominated the news recently.

It's easy to view the headlines as cautionary tales for individual investors.

However, it can also be viewed as an opportunity to welcome a new group of investors to the market...

Those drawn in by the high-stakes action yet want a long-term investment solution that doesn't keep them up at night.

This is probably a good time to mention that investing and gambling are not the same thing.

If you’re not the type of person who feels comfortable betting your life savings on a long shot, the good news is you don’t have to find the next big stock to win in the market.

Concentrating your whole investment on one or two companies means the stakes are high enough to expose you to unnecessary risk.

Even if you manage to land a few big winners, good luck is unlikely to repeat throughout a lifetime of investing.

For every individual who got in and out of a hot stock at the right time, there’s another who bought or sold at the wrong time.

If you treat the market like a casino, not only do you have to pick the right stock, but also the right moment.

I’ve always believed you’re better off betting with the whole market than on individual stocks, through a low-cost, highly diversified portfolio.

Then let time and compounding do their work.

Compounding is the investor’s best friend: if an investment grows at a rate of 10% a year, that means a pound invested has doubled every seven years.

As a point of reference, the S&P 500 has grown at rate of 10.26% since 1926, though it’s worth noting that the path is rarely smooth.

With all the options now available to investors, putting together a solid investment plan (one that you can stick with) is key.

Markets have never been so accessible and information so widely available.

Despite the fact that stories of stock-market gambling keep making the news, many investors have enjoyed investment growth using low-cost, highly diversified strategies like index funds.

Indexing has turned out to be a good solution for many people.

For those who want more customisation and flexibility, there are ways to build on the strengths of indexing while correcting for some of its weaknesses.

Dimensional has been working on improving indexing for the past 40 years.

If you’re looking to become a long-term investor, commit to a long-term strategy that takes your own personal goals, situation, and risk tolerance into account.

It's not easily achieved alone which is where a financial planner adds immeasurable value. 

Remember, investing is a lifelong journey.

Making money slowly is much better than making and losing money quickly.

It's a test of patience, discipline and resilience.

And the rewards can be life-changing.

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