When you first join the wide world of long term investing, it’s pretty exciting.
You put your hard-earned money to work and hope that it grows over time to help you reach your financial goals. And with a few clicks, you’ve become an investor and part-owner in possibly dozens or even hundreds of different companies.
You have a blossoming new identity as someone who saves and invests for the future. This is part of who you are now. So, with this newfound sense of purpose, how can we ensure this whole investing thing turns out the way we hope?
Paying attention
Your first instinct may be to become laser-focused on anything that could affect the value of your investment.
Things like economic news and current events. Government policies. Interest rates. Oil and commodity prices. Proposed tax changes. Forecasts from high-profile market commentators. And a whole raft of other things.
Most of this information seems incredibly important to a new investor. But we would suggest that you’re probably better off paying attention to none of it!
Why? Because every single one of these things is outside our control. Each is something we have zero influence over.
So, the question is: how can you improve your long term result by concerning yourself with things outside your control? The reality is, you can't. And due to our lack of control, focusing on these things causes us unnecessary stress.
Thankfully, there’s a better way. Instead of the above, it's far more powerful to focus on things you do have control over. Like what, you ask?
Focus on the Controllables
Investing schedule
When you make a commitment to investing on a regular basis, you're creating a strong foundation for your wealth-building journey. This is a more structured approach than simply investing “when you have extra money”.
Whether it’s weekly, fortnightly, monthly, or even quarterly, pick a schedule that works for you and put those dollars to work rain, hail or shine. Tools like Autoinvest, which we explore below, can make this process much simpler. Once you’ve decided on a regular schedule, make it a non-negotiable commitment like rent or a mortgage.
Investing amount
The single biggest factor driving your portfolio over the next 10 years is actually not your investment returns… it’s how much you invest. It’s far easier, more repeatable, and more realistic to increase your savings rate than to juice your investment returns.
That can disappoint some people, but it’s truly empowering because it gives us greater control over the outcome. Where can you adjust your spending to free up more cash to invest?
Fund choices
Without getting too into the weeds, another thing we can control is the fees we pay. Now, this doesn’t mean we have to put all our money in the single lowest cost fund we can find. But it does mean we should be mindful about the management expense ratio (MER) of the funds we’re investing in.
Putting the bulk of our savings into low-cost funds is one way we can greatly improve our odds of achieving better returns.
Being diversified
In theory, if we knew which companies were going to perform the best, we’d just ‘load up’ in those names and wait for our portfolio to balloon in value. Unfortunately, it doesn’t work that way.
Having a diversified portfolio ensures we’re not too reliant on any single stock, sector, or industry. And that gives us a smoother long term outcome, helping us achieve our goals with more certainty and lower risk.
Automate
While many of us like having our hands on the steering wheel, there’s a lot of power in automating our investments. This can help us avoid:
- Forgetting to invest,
- Spending the money elsewhere, or perhaps the most dangerous of all…
- Second-guessing whether it’s a “good time to invest”.
There’s not many cooler experiences on this planet than knowing your investment portfolio is growing with virtually no effort required.
Emergency fund
What has an emergency fund got to do with investing? Well, it’s incredibly useful to have extra cash and/or backup plans you can utilise in case of job loss or large unexpected expenses.
More than a stress reliever, it means you can avoid being a forced seller of your shares. Instead, you can look at your investments with an “own forever” mentality. Or, as Charlie Munger puts it: “The first rule of compounding is to never interrupt it unnecessarily.”
Don't check your account
Okay, telling you not to check your account is pretty unrealistic. We all check our accounts - probably more than we’d like to admit! So let’s frame it another way.
If you check your account on any given day, there’s close to 50% chance it’ll be down. But because the market has historically gone up over time, the longer you wait, the more likely it is that your account will be higher when you do check.
That means less frustration, and a more positive investing experience.
Reinvest dividends
Every few months, you’ll likely receive a dividend/distribution from your investment (depending on what you’re invested in). Now, these payments will probably seem annoyingly small at first. How could these little bits of income even matter?
Well, they absolutely do! Reinvested dividends will drive a significant portion of your portfolio’s growth over time. So make sure you reinvest every single one of these payments.
Each time you do, you own a larger number of shares, meaning bigger future payments to reinvest, which increases your ownership even further, in a glorious upwards spiral.
Remember the big picture
Your shares are a lot more than numbers on a screen. Your shares represent a slice of ownership in businesses with employees that are working hard, innovating, serving customers and ensuring they deliver profits for shareholders.
It’s about people, products and profits. All of these things are tangible and happening in real life every day. But when we spend too much time looking at screens and charts, we can forget this critical piece of information.
Focus on your personal goals
Almost every year, you’ll hear about sexy-sounding strategies, investments which are shooting the lights out, and investors who are getting rich faster than you. But the far majority of these things never last.
Most of the people who were gloating about returns and buying speculative rubbish in 2020-2021 are getting destroyed right now. The crowd that's left standing are the boring long term investors, also known as the Get Rich Slow Club.
These people - and maybe you're one of them - are the quiet achievers. They don’t get caught up in meme-stocks and other speculative manias. They focus on their goals, and understand the simple and proven path to real wealth is through consistent saving and making sensible long term investments.
Final thoughts
We can expand on any of the above points in the future and dig into the meat of why these points are crucial for long term investors. In fact, let us know which of these (or other topics) you’d like us to cover here in future blog articles.
In the meantime, hopefully this list of actions will keep you busy enough to stop fretting about the other short-term stuff that gets all the headlines. When you’re feeling nervous at any time during your investing journey, come back to this and focus on the Controllables.
Long term investors pay attention to long term things. How much they invest, how long they invest, and what they invest in.
News, forecasts, and market commentary don’t fit that criteria. So, turn down the noise, dial-up your regular investing amount, and go enjoy the rest of your week!
