Rip Van Winkle-The Investor

Four “tweets” can tell you everything you need to know to be a successful investor in the stock market:

Tweet #1:  Your investment portfolio should be as broadly diversified as possible.

Tweet #2:  Stay disciplined.

Tweet #3:  Minimize costs and pay attention to taxes.

Tweet #4:  Never invest capital that you are going to need anytime in the near future.

That’s it!–Plain and simple.

Over the next few weeks I will tell you why this is all you need to know, why sticking to these fundamental principles is so difficult and why the financial services industry tries so hard to convince you otherwise.

There is always uncertainty about the future, and the current economic environment in no exception.  In fact, this “good news one day, bad news the next” market is causing a lot of stress for all investors.

In the past, when faced with this type of market, I would hear clients say, “I just don’t know if I can take this anymore, it’s killing me.”  The stress would result in sleepless nights, and anxiety that made it difficult to deal with all the other issues in their life.  They just wanted to get out in order to relieve the pain.

In order to keep them from making a bad decision I would remind them that their capital was invested for the long-term, telling them, “If you need this money now then we should never have put it in the market.”  That’s not investing, that’s speculation.

Then I would ask them, “If you get out of the market to relieve the stress, how long do you think it will be before you will be faced with the equally stressful decision of when to get back in?”  So many investors got out of the market in early January 2009 when the S&P 500 was approaching 700, and then watched as the market went back above 1300, all along the way, asking themselves, when should I get back in?

In other words, the stress of investing will never go away until you understand that success only comes to those who can stay focused on the long term.  Otherwise, you are an investor who has become a speculator, even if you don’t know it.

My advice:  Have a nice long rest and when you wake, chances are you will have had a successful investment experience.


Filed under Investments, Investors

3 responses to “Rip Van Winkle-The Investor

  1. i cant wait to be rich enough to start investing… student loans suck. great advice though, Dan, thank you.

  2. Rachel

    Great advice!

  3. Sherif B.

    A good investor should have patience and discipline. Most people don’t look at their financial picture before making financial decisions. They just follow the herd.

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