Following are twelve general rules of successful investing. Remember always that each investor is different. No single set of rules or policies can replace a thorough analysis of each individual’s financial needs. These rules are presented only as a starting point for determining your own investment plan and are not intended as specific or complete investing advice for any individual or organization.
Need help? Call Insight Wealth Management to schedule a free consultation and portfolio review. We can provide some initial guidance as to how well your current portfolio measures up to these rules, and help you decide if we’re the right advisor to build a portfolio that works for you.
1. Have a plan and stick to it. Create a financial plan, investment policy statement and portfolio strategy that reflect your financial goals and tolerance for investment risk. Dumping standardized data from a questionnaire or booklet into canned “financial planning” software, or using life-stage or life-style funds generates superficial, cookie-cutter portfolios. Don't panic when markets are down and don't get greedy when markets are strong.
2. Use the investments with the lowest fees and expenses that will accomplish your portfolio goals, and know what you own and why you own it.
3. Focus on managing investment risk rather than chasing return.
4. Don’t rely on sell-side research. See the page on this web site on “Research” for more information.
5. Don’t take advice from someone who profits from your acting on that advice. In other words, use an advisor who works on the basis of straightforward, transparent fees rather than commissions or other compensation that depends on selling you something. Work only with advisors who are required to abide by the fiduciary standard mandated for investment advisors rather than the much weaker "suitability" standard applied to brokers and others who sell financial products.
6. Measure your portfolio’s risk-adjusted performance, net of all fees and expenses, and compare that performance to relevant benchmarks. Don’t deal with any broker or advisor who won’t or doesn’t know how to provide that analysis for your portfolio and in aggregate for their firm.
7. Don’t try to “beat the market,” chase performance, or fall victim to the “hot-stock” syndrome. Stick to your investment policy and portfolio strategy even when tempted to do otherwise.
8. Revise your investment policy, portfolio strategy, and investments only based on an objective reassessment of your personal circumstances, changes in the long-run outlook for the capital markets, or rebalancing to keep the investments consistent with the policy and strategy.
9. Avoid excessive turnover and trading. They don’t pay off and only increase fees, expenses and taxable gains.
10. Focus on allocations to well-diversified exposure to asset classes, consistent with your investment policy and portfolio strategy, rather than picking individual securities.
11. Know what you are paying in terms of commissions, management fees, fund loads, expenses and any other costs. Don’t deal with advisors or brokers who won’t provide an itemized list of all one-time and recurring costs, including those imbedded in funds, annuities, etc.
12. Ensure that any advisor with whom you work is trained and experienced as an investment professional rather than a salesperson who has learned the jargon of investing. What education, experience and professional certification in finance and investments does the advisor have? How long have they been providing investment advice? Do they understand even the basics of portfolio management, such as the impact of including uncorrelated asset classes on portfolio risk and return? How do they keep current on professional knowledge (i.e., continuing education, conferences, professional associations, and professional publications)?