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The 10 tenets of investing

Rule number 1 of investing – follow the tenets

Rule number 2 – don’t forget rule number 1

OK, a little take off from my names sake in the investment world, Warren Buffett, but it’s true, below I have listed the 10 most important traits which, when you follow these you will have a better, more enjoyable investment experience!

So here goes:

1. Let the markets work for you

The market is an effective information processing machine. Millions of participants buy and sell securities in the world market every day and the real-time information they bring helps set prices.


2. Investment is not speculation

The market’s pricing power works against fund managers who try to outsmart other market participants through stock picking or market timing.  As evidence, only 19% of US equity mutual funds have survived and outperformed their benchmarks over the past 15 years. In addition, very few managers that do perform well repeat their performance in subsequent time periods. Studies of the European fund market find similar results.


3. Take a long-term approach

The financial markets have rewarded long-term investors. People expect a positive return on the capital they invest and, historically the equity and bond markets have performed and provided growth of wealth that has more than offset inflation.


 

4. Consider the drivers of return

Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns. These robust dimensions are pervasive across different markets and persistent across different periods. They can also be pursued in a cost effective portfolios.


 

5. Practice smart diversification

Diversification helps reduce risks that have no return, but diversifying within your home market is not enough. You should also use diversification to broaden your investment universe.


6. Avoid market timing

You never know which market segments will outperform from year to year.  By holding a globally diversify portfolio investors are well positioned to capture returns whenever they occur.


 

7. Manage your emotions

Many people struggle to separate their emotions from investing.  Markets go up and down.  Reacting to current market conditions may lead to making poor investment decisions at the worst times.


 

8. Look beyond the headlines

Daily market news and commentary can challenge your investment discipline. Some managers stir anxiety about the future while others tempt you with the promise of easy profits. If you are tempted consider the source and learn to spot the difference between entertainment and real advice.


 

9. Keep costs low

Over long time periods, high costs such as management fees, fund expenses and taxes can drag on wealth accumulation in a portfolio.  You should strive to incur only those costs that are unavoidable and those that add value to your investments


 

10. Focus on what you can control

A financial planner can create a plan tailored to your personal financial needs while helping you focus on actions that add value.  This can lead to a better investment experience.  When investing without a Financial Planner ensure you know your outcome before you start to investment process.

Well they are my 10 tenets of investing.  Follow these for a nicer longer term experience.  Below is a graphic which summarises all 10.

 

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