Dick Young recently wrote an article containing powerful reminders of how to increase your investment performance and how to avoid common mistakes that hinder performance.
These rules don’t rely on any complex mathematical formulas nor do they require advanced knowledge of any investment concepts.
- Compound interest is your greatest ally. The sooner you begin investing, the longer the money can compound and grow. Start today instead of trying to play “catch-up”.
- Investment results tend to suffer as trading activity is increased. Not only is increased trading activity costly, but this tends to reflect a short-term trading mentality rather than a tried and true long-term buy and hold philosophy.
- We can not see into the future, and therefore market timing is a strategy doomed to fail.
- Sales charges, high expenses, and tax inefficiencies are the biggest hindrance to long-term performance.
- Dividend paying companies and companies who are aggressively growing their dividends should be the primary focus for long-term, risk averse investors.
- Focus on the income generated by your investments not the short-term investment performance. Stocks may go up in value and may have periods where they go down in value. You can always count on interest and dividends which are real and reliable (generally speaking).
- When considering mutual funds, past performance has essentially no correlation to future results. Instead, focus on funds that have performed consistently with the lowest costs.
- Over the long-term, stocks will outperform cash and bonds. Therefore, every investor should have an allocation to stocks based on his or her risk tolerance.
- Diversify as much as possible. Have you heard the term “Don’t put all of your eggs in one basket”? This applies to investing. No one knows the future: invest globally, in various asset classes and across different sectors and industries.
- Don’t be overconcentrated in one stock. Many people may receive their company’s stock as part of a bonus or compensation plan. While you may believe in the long-term success of your employer, do you really want both your paycheck and your retirement savings to be dependent on that one company? This could be a recipe for disaster, just look at what happened at Enron and WorldCom.
People often ask us as investment professionals: “How can I save enough for retirement?”. In summary, if I could only provide one sentence of advice: Invest as much as you can, invest as early as you can, focus on dividend paying companies, and keep your costs low.
To read the article by Dick Young go here: https://www.youngresearch.com/researchandanalysis/investment-strategy/nine-ways-to-powerfully-boost-your-investment-performance/.