There is very little that you can control, including the market, economy and how CEOs run their businesses. Instead of wasting your time and energy trying to outsmart or predict the direction of any of these factors, focus on the things you completely control.
Control the Noise
“Noise” comes in many forms—an evening news anchor warning of the upcoming bear market, or an online article headlining the top stocks to own this year. Conversations about the latest sector or “hot” IPO with your family and friends also fall into this category. In the end, remember that you ultimately choose what information is worth taking seriously.
We continually monitor investment expenses for our clients because they have a major impact on the bottom line. In addition to selecting and monitoring their investments and associated fees, we also take care to keep any trading costs to a minimum.
Control Your Investment Strategy
Years of academic research has proven that adherence to a long-term investment strategy produces the best results. The opposite: a short-term strategy based on market hunches and guessing (the things you can’t control) is expensive, risky and oftentimes unsuccessful.
A recent article in TIME magazine talked about a $1 million bet between famed investor Warren Buffett and Ted Seides, a prominent hedge fund manager. In 2008, Buffett bet the hedge fund manager that an investment in an index fund that tracks the Standard & Poor’s 500 could beat Seides’ hedge fund over the next ten years. So far, Buffett has a healthy lead of approximately 40 percent.
Control Your Portfolio’s Allocation
Another thing you can control is your portfolio’s structure and allocation as it relates to your overall financial plan. When we create financial plans for our clients, we meet with them to get a clear sense of their financial goals and how much risk they’re willing to take to meet them. Then, we create an investment portfolio that is designed to match both.
Your Own Behavior
The real work relates to our clients’ ability to stick with the financial plan through times of market turbulence. We’ve seen clients on both sides of the fence. Those who felt nervous, preferring to bail out only to later regret their decision. On the opposite side, some asked us for reassurance during uncertain times, but stayed with the plan and followed through to reap the benefits.
The proof is in the execution. Your ability to cut out the noise and stick to your original decision can be the biggest determinant of your success.