Mastering Investment Discipline in 60 Seconds
The human element is a profound factor in investing. Natural tendencies such as fear and overconfidence can cause us to make bad decisions about money. Take a minute to understand how to keep your instincts in check with investment discipline.
:60 Turn off the financial news. The media hype is rarely warranted, breaking news has no bearing on your financial goals, and too much market information may be bad for your health.
:53 Log off from your online investment accounts. Smart investing is like a gradual boil—don’t waste time watching the pot. Constantly checking returns is conducive to anxiety and a temptation to make trades.
:48 Build a diversified portfolio. Spreading your investment dollars among different assets can lower volatility. Even by adding more lower-risk, lower-return investments, you can achieve the same overall return as buying only higher-risk, higher-return investments.
:40 Review your financial goals. Investing is meant to generate wealth for specific goals. Make sure they are still the goals you want to achieve and you’re still on track to get there.
:34 Be boring and buy the market. Generally, investors are bad at investing, gaining far less than the market returns of many asset classes. So match the market by putting money into index funds and exchange-traded funds (ETFs).
:30 Speak to your financial adviser. An adviser can provide expert opinion, reassurance and hard figures that show how your investments are doing in relation to your goals.
:25 Be humble and dismiss good returns. Too much confidence in your investment skills or best performing investments is a bad thing. Nature—and the market—have a way of showing you otherwise.
:21 Just for a second, imagine losing 30% of your investments. Can’t bear the thought? Then you likely cannot tolerate the risk of your current asset allocation and should consider more conservative investments.
:20 Tell everyone you’re a communist. Not really, but declaring your hate for the free market may be the best way to keep friends and family from pressuring you into buying their hot stock tip.
:15 Track your expenses. You keep less of your returns when paying high costs. Lower expenses are one of the reasons index funds usually give you more of your returns than active funds.
:10 Think ahead not behind. Make investments based on your financial goals instead of the latest market trends. Past performance does not equal future returns.
:07 Learn the investment basics. Educating yourself on the fundamentals of finance from reputable leaders in the field will help you focus only on what you can control.
:03 Rebalance your portfolio. Sell some of whatever has done best and buy some of whatever has done worst to rebalance your investments back to their original targets. It is a way to maintain diversification and help control risk, and is a good test of your discipline.
:01 Take a nap. You cannot influence the markets or events that affect them. Put your investment efforts in what you control (costs, asset allocation, rebalancing, etc.) and let the rest work itself out.