My main focus today, as it has been for some time, has been on my children and grandchildren, preparing them as best I can for their financial futures. I try to impress upon them that investing does not need to be complicated. In fact simplicity is the key along with a healthy dose of common sense. I keep harping on 4 points for them to remember which have served me well over the past 5 decades and counting.
One, be cheap. Keep your investment expenses as low as possible as this is the surest route to above average performance overtime.
Two, diversify. No one knows what the stock markets are going to do today, tomorrow or next year nor which sector, style, or region will lead and which will lag behind. The most logical strategy therefore, is to invest as broadly as possible.
ASSET CLASS RETURNS
Source: J.P. Morgan Asset Management, Market Insights, Guide to the Markets , U.S. | 2Q 2019 | As of March 31, 2019. Page 60
Three, allocate prudently. Your asset allocation- the mix of bonds and stocks you hold as well as real estate plus any private investments – will have a greater impact on your portfolio’s long term performance than any other single factor so select an asset allocation that you can live with over the long haul.
Lastly, stick it out. Most of the damage to an investors’ portfolio comes from their inability to sit quietly in a room. Our emotions cause us to plunge into stocks at their euphoric highs and to bail out as they reach depressing lows- precisely the opposite of what the cool logic of common sense would provide.
STOCK MARKET SINCE 1900
Source: J.P. Morgan Asset Management, Market Insights, Guide to the Markets , U.S. | 2Q 2019 | As of March 31, 2019. Page 17
Just remember, in investing, simplicity trumps complexity. Trust your own common sense.
As I finish articulating these points to my grandchildren in bed, I look from side to side and see that they are both sound asleep. I hope the message got through.