There’s no secret to quick riches.
You won’t find one here.
But this is the closest you'll get to a ‘magic formula’.
And while these principles are simple, getting them right is not easy.
The human brain is wired to think investing must be complicated.
That’s one of the things that makes most people bad investors.
Here are 3.
To find out all 9 principles which will increase your odds of investment success, download our guide below.
1. Don't try to outguess the market
Do you enjoy a trip to the cinema?
Imagine if you constantly entered and exited the theatre throughout a film.
You tried to exit during the worst parts and reentered during the best.
But without knowing what was coming, you would miss several fabulous parts.
How would that make you feel?
Plenty of investors try to do the same thing: jumping in and out of investments when they think the time is right.
But the best results come when we stay in our seats.
Reams of evidence support this (take fund managers who, despite their market-timing-claims, perform poorly, long term).
Missing the best days, weeks and months is an expensive mistake.
Like a good film, sometimes the markets will have you on the edge of your seat, sometimes laughing, sometimes in tears.
But those who stay for the duration reap the best rewards…emotionally and financially.
2. Resist chasing performance
You know the feeling.
You’re in the longest queue in the supermarket.
You see one moving faster, so you swap.
To your dismay, your new queue now grinds to a halt.
Meanwhile, the queue you left picks up the pace.
While this may be random in a supermarket, it’s anything but random in the investment world.
Peer reviewed academic research all too often suggests that fortunes reverse.
It can be tempting to jump from one investment fund to another when it feels like there is a loss of momentum.
We switch queues, only to find out we’d have been served quicker staying put.
No one knows what will happen in the future, and the fast-moving queue is unlikely to remain so.
Over long time periods, the best performance doesn’t come from chasing past winners.
That’s much like dogs chasing tails.
Instead, we need to maintain a diversified portfolio of low-cost funds and rebalance it every year to maintain a target allocation.
3. Consider the drivers of returns
“Remember to look up at the stars and not down at your feet” – Stephen Hawking
Many view the market universe in terms of individual stocks and bonds.
This, to borrow from Professor Hawking, is looking down at your feet.
But the universe, as viewed through a powerful telescope, is made up of planets, moons, stars, galaxies, asteroids, comets… the list is endless.
Investors should think of the market in the same way.
Yes, there are individual stocks and bonds.
But what about the often-unexplored broader dimensions, that have similar, relevant characteristics?
Think geographic location, company size, relative price, profitability and currency.
The great part?
You don’t need to understand any of these, or how they work.
You just need to own a diverse universe and let the markets do the rest.
All investors have to do is look up at the stars...
