This list of factors about investing is part of a document that I often provide to my clients as we’re working with investment planning. The list isn’t intended to be exhaustive, but rather representative of some of the truisms that I have found to be helpful over the years.
Add your own truisms to the list and I’ll put this up as a separate page to include your comments as well!
Investing Success Factors
Time is the most important factor relating to an investment plan’s success. There is no substitute for starting early and maintaining regular contributions to your savings.
Diversification, among asset classes, sectors, and tax treatment, is the second-most important factor relating to an investment plan’s success. The old adage “Don’t put all of your eggs in one basket” applies here.
Keeping expenses down, by utilizing low-cost investment vehicles such as no-load mutual funds and exchange-traded funds, is another very important factor in an investment plan’s success. When you pay extra money in commissions, loads, and management fees, this money is lost to you forever and will not work toward your investment goals.
The principal cause of changes in investment prices is a change in consensus expectation for the future.
Past performance is no indication of future results. Investment returns can only be made in the future – it is impossible to buy past returns.
When you work with a financial advisor, you are not paying for tips, secrets, or inside information. You are paying for knowledge and reason applied to your specific circumstances. Investors who utilize a financial advisor have generally increased odds for success in investing. However, increasing your odds does not mean you will be 100% successful.
Count on its
I refer to the next group of truisms as the “count on its” – meaning, these are things you need to expect as you undertake investing:
The value of opportunities that you’ve missed will always exceed the value of those opportunities that you take. It’s a matter of perception – the grass is always greener on the other side of the fence.
Sometimes we will buy an investment that will immediately go down in value right after we buy. Other times we will sell an investment that will immediately afterward rise in value. It happens, and there’s nothing you can do about it besides sticking with your plan.
Get used to uncertainty. Like it or not, every investment decision is based purely upon reasoned guesses about the future.
That’s my list – add your Investing Truths in the comments below. I’m interested in seeing other perceptions!