Many people look for the secrets to investment success.
Is it timing the market just right? Is it finding those hot stocks or getting in on the ground floor of the next big thing?
These types of moves have little relevance to the vast majority of investors — even the most successful ones.
It’s time in the market, not market timing. Some investors think they can succeed at market timing — buying when the price is low and selling when the price is high. This would be a good strategy if they could predict highs and lows. No one can accurately forecast these peaks and valleys. Instead of ducking in and out of the market, simply stay invested. The more time you spend in the market, the lesser the impact you’re likely to feel from short-term price swings. And if you’re always invested, you’ll always be in a position to benefit from the next market rally.
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It’s “buy and hold,” not “buy and sell.” Even if you aren’t trying to time the market, you may be tempted to buy and sell frequently as you look for new and better opportunities. Frequent trading, with all the additions and subtractions from your portfolio can make it hard for you to follow a consistent, unified investment strategy. You’re better off purchasing quality investments and holding them for the long-term until your needs change or the investments no longer possess the same attributes they did when you purchased them.
It’s building a strong foundation, not getting in on the ground floor. Many people regret not being one of the initial investors of a company that has done spectacularly. But most new companies don’t achieve anywhere near that level of success. Instead of looking for the next big thing, try to build a strong foundation with a mix of quality investments suitable for your risk tolerance, goals and time horizon. This type of investing may not sound glamorous, but a strong foundation is better equipped than a possibly shaky ground floor to withstand the shifting winds of market forces.
It’s cool-headed thinking, not chasing “hot” stocks. If you browse the Internet or watch investment TV shows, you are bound to read or hear about hot stocks. But by the time the news reaches you, these stocks may already be cooling off. And they might not be right for your needs. By their nature, they carry a strong emotional component (namely, the desire for quick, big gains) — try to coolly and dispassionately analyze your situation to determine which investments are most appropriate for your goals.
There aren’t any shortcuts to reaching your desired financial destination, but by taking the slow and steady path, you can work toward getting there.
Deborah Leahy is an investment adviser with Edward Jones, member Canadian Investor Protection Fund. firstname.lastname@example.org