Most people never achieve their financial dreams. Why? In many cases, it’s because they never understand how long-term wealth is created. They assume that investment success depends on picking a hot stock, finding an all-star investment manager, or avoiding market downturns.
What we’ve found though is that the harder we try to beat the markets, the more we fail. This applies to most individual investors as well as to professional money managers. Even Warren Buffett admits that “we continue to make more money when snoring than when active.”
Although the financial services industry provides an abundance of great services, its very existence depends on the illusion that every player has built a better mousetrap. When you think about it though, it is entirely illogical to think that the players can beat the averages. After all, they all form the averages and, after the often excessive costs they extract from your portfolio, at least 80% of them underperform their benchmarks in the long run.
In reality, the blueprint for success is simple and straightforward. You must rethink your notion of investing and take a different approach. This involves understanding markets and harnessing their power, knowing yourself as an investor, and working your investment plan.
When rethinking the way you invest, you may need to swallow your pride. Don’t worry, it happens to the best. In reply to a criticism during the Great Depression of having changed his position on monetary policy, the economist John Maynard Keynes said “When my information changes, I alter my conclusions. What do you do, sir?”
In the subsequent posts, I will be addressing ten key investment principles that will help you improve your odds of having a successful investment experience.
Allow me to give you a short preview.
Understanding the markets is the first key and involves letting the markets work for you, knowing the risks that are worth taking and committing to investing rather than speculating.
Once understood, we will discover how to harness the power of the markets by holding multiple asset classes, practicing smart diversification and keeping costs low.
Along this journey it is essential to know yourself. In our media-spun world, we cannot confuse entertainment with advice and we must manage our emotions and biases.
Finally, we will finish up our series by helping you to avoid the most common investment mistakes and the importance of sticking to your long term plan and staying the course.
Click here for part 1 – Keep Calm and Let the Markets Work.