The Virtues of Simplified Investing
When you watch the financial news on television, you may think investing is hopelessly complex - just a jumble of numbers, symbols, and hyperactive floor traders shouting and making strange hand signals. The reality however, is very different. Successful investing is not that difficult, it's just intimidating. And investing really is easier than most people think.
The essence of successful investing lies in being able to tune out the "noise" and focus instead on the big picture. For most of us, yesterday's market moves or the latest lists of hot funds merely serve as a distraction to the simpler, but far more important drivers of wealth creation, like your savings rate and overall mix of stocks, bonds, and cash.
You can build a successful long-term investment program with just a few simple components. But bear this fact in mind: "Simple" isn't the same as "easy." As important as your financial decisions, is the resolve to stick with your program.
Make a realistic plan. Review your finances honestly and carefully. Keep your goals, and determine what you need to do to achieve them. Then create an investment plan. Remember to be realistic. Don't expect your portfolio to earn a return of 25% each year - the historical average annual returns of stocks, bonds, and cash investments are 10.6%, 7.2%, and 5.8%, respectively. Those returns were before expenses and taxes.
A portfolio that has the appropriate mix of stocks, bonds, and cash investments for your needs is easier to create than you think. It can be accomplished simply by investing in a single balanced mutual fund. But be sure to watch the expenses.
It's all too easy to get caught up in the short-term volatility of the stock and bond markets and to chase performance, reacting emotionally when making decisions about your investments. However, keeping a level head and resisting the urge to change your portfolio are traits of successful investors. So stay the course and resist the urge to make sudden changes.
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The essence of successful investing lies in being able to tune out the "noise" and focus instead on the big picture. For most of us, yesterday's market moves or the latest lists of hot funds merely serve as a distraction to the simpler, but far more important drivers of wealth creation, like your savings rate and overall mix of stocks, bonds, and cash.
You can build a successful long-term investment program with just a few simple components. But bear this fact in mind: "Simple" isn't the same as "easy." As important as your financial decisions, is the resolve to stick with your program.
Make a realistic plan. Review your finances honestly and carefully. Keep your goals, and determine what you need to do to achieve them. Then create an investment plan. Remember to be realistic. Don't expect your portfolio to earn a return of 25% each year - the historical average annual returns of stocks, bonds, and cash investments are 10.6%, 7.2%, and 5.8%, respectively. Those returns were before expenses and taxes.
A portfolio that has the appropriate mix of stocks, bonds, and cash investments for your needs is easier to create than you think. It can be accomplished simply by investing in a single balanced mutual fund. But be sure to watch the expenses.
It's all too easy to get caught up in the short-term volatility of the stock and bond markets and to chase performance, reacting emotionally when making decisions about your investments. However, keeping a level head and resisting the urge to change your portfolio are traits of successful investors. So stay the course and resist the urge to make sudden changes.
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posted by Bob Moser at
6:28 PM
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