Simple is better than complex.
Make it easy.
Investing looks hard – you hear about all of these professionals on Wall Street spending hours poring over financial statements or watching the markets. Investing sounds hard – indeed, investing has its own language and hearing excited (mostly males) talking about the stock market certainly does not really make you want to jump in. Investing even feels hard – how exactly do you get started? But contrary to popular (and wrong) belief, investing successfully is actually very simple. You just need to know what you want and have a plan to achieve it. And you need to keep it simple.
Simple is better than complex.
Human beings, for whatever reason, seem to prefer complexity. Seeking complexity makes you seem smarter and makes you sound like a hard worker. But in reality, keeping things simple not only makes your life easier, it also is more elegant and less mentally taxing. Investing is no different. We are big believers in index investing (see our post “No Time for Research? Invest in an Index…”), mastering your emotions (“Master fear and greed and you are 90% there”), beating inflation (“Inflation is the silent killer of your financial wealth”), and continued learning (“Keep learning even when you are invested.”)
How can you keep it simple?
Know your investment goals and have a plan. Also, stay consistent and keep the emotion out of your investment decisions. Don’t speculate, but rather invest. Keep a long-term time horizon in mind. And know that investing is a necessity, not a luxury.
Use Index Funds
We love index funds for investing, especially index funds for broad based market indices, like the S&P500 Index. In fact, legendary investor Warren Buffett has said that he “recommends [people invest in] the S&P 500 index fund and [has recommended that] for a long, long time to people" and that investors should “[c]onsistently buy an S&P500 low-cost index fund… Keep buying it through thick and thin, and especially through thin.” We love index funds and recommend that you learn more about them. See “No Time for Research? Invest in an Index…” We also offer a course titled “Investing in ETFs and Index Funds.”
Index funds offer great diversification and you don’t need to choose stock specific investments, you simply invest a set amount every month into an index fund for a broad-based market index, like the S&P500 Index. In fact, you don’t need to beat the market, you simply need to preserve the value of your investment and grow it greater than inflation. See our posts “You can try to beat the market, but do you really want to?” and “Inflation is the silent killer of your financial wealth.”
We love index funds because it is far less stressful to buy the “market” by way of an index fund that tracks the broader market instead of trying to find individual stocks. You don’t need to beat the market, but you do need to be invested. If you are unsure of where to invest, picking a broad-based market index will serve you well every time.
“Don’t look for the need in the haystack. Just buy the haystack!” – John Bogle
Understand that time is your friend.
You must be patient and allow compounding to work its magic when you invest. Being impulsive will harm you and you should avoid impulsive actions when you invest. See “Time is your friend.”
Know that the long-term trend trumps short-term volatility, zoom out
Keep the long-term in mind. Short-term thinking will hurt you. In the long-term, stocks tend upwards, while in the short-term they are volatile. Don’t let the volatility get to you. See “Zoom out” and “Overlook short-term volatility in favor of the long-term trend.”
“The individual investor should act consistently as an investor and not as a speculator.” – Benjamin Graham
Invest a set amount every month
Investing a set amount every month will keep you disciplined and also ensure that you keep investing. See “Invest a set amount every month. This is called dollar-cost averaging.”
Have the right mindset
Knowing why you are investing and staying calm in the face of sudden market movements – either up or down – will help you with taking the best, most rational steps with investing. Having the right mindset will make or break you when you invest. See “The right mindset is the most important piece of the investing puzzle.”
Don’t time the market
It is impossible to time the market. So, don’t. Just invest a set amount every month and keep investing. You will catch the lows and the highs, but you won’t miss the big moves that will give you returns in spades. See “You cannot time the market… So don’t.”
Have investment goals
Know why you are investing and for what reasons. Having investment goals and a plan to get there will keep you focused. See “Write out your investment goals… so you are always clear in your vision.”
Understand how compounding works
Understanding how compounding words will allow you to appreciate the magic of compounding and how it impacts your investing. Compounding is the “eighth wonder of the world” and you should keep your investments compounding for as long as possible. See “Compounding is magical.”
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” – Albert Einstein
Put the news where it belongs
The news can throw you off. So, know what is going on, but don’t let the news impact your investment activity. Sometimes the best investments you can make are during downturns. Inevitably, the market will turn. Timing the turn is impossible. Don’t let the news “pundits” influence your investing activities. See “You will be bombarded by news… take a step back.”
Always remember, keep it simple.
“Simplicity is the ultimate sophistication” – Leonardo da Vinci
Key: Simple is better than complex.
Check out our website SHALnCO for more resources on investing, including courses and eBooks.
Nothing in this email is intended to serve as financial or investment advice and you should do your own research and consult with appropriate advisors.