The Standard & Poor’s 500 index had a banner year and saw gains of more than 30% in 2013. Some investors had portfolios that lagged behind these returns but we’re here to tell you that it’s a good idea to be well diversified, which means that even if you didn’t have all of your stocks in the S&P 500 you’re still going to be okay.
Below are a number of investing tips that, if followed, should help you to have a good year this year and every year in the future. Enjoy.
The first is simply this; coming up with a plan to invest based on your desired goals, and then sticking to that plan, is the mark of the disciplined investor and one that almost always sees excellent returns over the long run.
Next we come to emotions, which you need to learn to control if you want to be a successful investor. The simple fact is that the market moves in cycles up and down and following a “reactive” plan based on either optimism or fear is almost always a plan that will reduce your returns.
Do you like to “bounce” in an out of the market? That’s really not a good idea. Here’s an example why. Let’s say you invested $1000 in the S&P 500 at the beginning of 1970 and kept it there until the end of 2012. If you didn’t touch it at all that $1000 would have grown to just under $59,000, a 9.94% annualized return.
Now, for the sake of example, let’s say that you missed the 25 best single best days for returns during that time period because you were in the market and out of the market frequently. If you did, your annualized return would drop to 6.33%, an enormous difference. Simply put, there is compelling data that proves that bouncing in and out of the market is almost always harmful to your overall returns.
Being a disciplined investor means not reacting to the crises that pop up on a daily, weekly or monthly basis (and boy do they pop up). Things like the.com stock crash, the “fiscal cliff” fiasco, terrorist attacks and the subprime mortgage crisis certainly had many investors jumping around like hot potatoes, but those that remained disciplined won the day.
From everything that we’ve learned, read and seen over the years, the simple fact is that the most successful investors are those who have a plan and stick to it, don’t let their emotions cause them to make poor investing decisions and stick to their investments over the long run. If you can do this (and anyone can) the facts and statistics say that, when all is said and done, you’ll come out on top.