What’s the secret to investing success? In my opinion, it’s two-fold. Investors first need a good starting point: Review your goals, objectives and how long your assets will need to work for you—then construct your portfolio accordingly. No simple task, but it gets harder! (No one said investing is easy.) When markets start to really move—up or down—it’s easy to lose confidence in your portfolio’s setup. Then, staying disciplined is key.
Most everyone knows to carefully vet portfolio decisions before acting on them and not to fret short-term volatility. But knowing something isn’t the same as doing it. With any number of distractions out there—the media, friends, family, fear, greed, etc.—when markets change direction, it’s easy to throw investing strategies out the window in favor of “gut feelings.” But guts are fallible, emotional, backward-looking (brainless, gross)—leading to irrational decisions that rarely do portfolios good.
If this sounds familiar, you’re not alone—and I can help! An investingchecklist can help keep you on track in times of doubt ... heart pounding ... rumbly tummies. It’ll force you to critically consider portfolio decisions and hopefully help head off some bad ones. You could even use it retrospectively—to see why a certain decision hurt when you thought it’d help—in an effort to avoid making the same mistake (over and over) again. Following are some items to consider when making portfolio decisions—to help keep cool-headed and consistent, even when your gut’s calling to do something, anything:
Reviewing these when considering a potential trade or portfolio shift could be the difference between eventually having your investments when you need them most and running out of money in retirement. It also can help you avoid critical behavioral errors! Without even realizing it, most investors trade on the assumption past performance foretells future returns. Investors know, intuitively, this belief is wrong—but it’s only natural to feel recent market trends will continue into the future. Trading on short-term performance to improve short-term performance, however, can hurt returns long term.
It’s super easy to forget about the long term when you’re watching one hot category or stock fly high—or stocks reel during a correction. Humans can be a little short-sighted. Yet fire-in-the-pants investors looking to score big by chasing hot styles and stocks (or trying to "stop the bleeding" by "selling the losers") risk missing their much more important long-term goals and objectives. Despite what many in the financial media and your day-trading Uncle Jim say, investing is not a day trip. It’s a lifelong journey requiring an appropriate plan and the discipline to stay on task. Even if you do end up with one or two big payoffs from risky moves, you could lose more by continually letting your emotions run your portfolio. Remember: Your gut is for digestion, an icky process with no relationship to money or your goals. Hence these questions: designed to help keep your gut in check and let you focus on where you want to go over time.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.