In business and sports, everyone dreams of the payoff. A company that sells for billions and an athlete that signs the big contract. Yet, every owner and athlete who has achieved this will tell you the sacrifice and resiliency it takes to survive the gauntlet of the journey.
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You should be investing, but that doesn’t mean you have to settle for a poor investing experience. The broker selling you the next hot stock or Jim Cramer telling you to “buy, buy, buy” will not deliver the good experience nor the optimal returns you deserve.
Too many investors hear about the newest hot stock on the golf course or in the locker room. They then go out and buy it. This is the worst way to invest because there is no foundational plan.
Actively implementing a sound investing process involves minimizing taxes, reducing expenses, and eliminating frictional costs to your returns. It also keeps emotions in check and reduces anxiety or uncertainty. This is the process of building a bullet-proof financial structure.
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Recessions, high inflation, or all-time market highs are usually the only times investment news makes its way into mainstream media. Financial news is really incentivized to instill fear or greed and is only entertainment at the end of the day. Ignoring this noise is paramount to a better investing experience and zooming out to the big picture can help keep market adversity in proper perspective.
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Intelligent diversification is implemented across countries (ex: US, Developed International, Emerging Markets), asset classes (ex: stocks, bonds, real estate, alternatives), and also factors (ex: relative value, small-cap, profitability).
This diversification reduces the uncertainty of hitting the priorities that matter to you and avoids devastating outcomes that resulted from the lost decade in the US, the Japanese stock bubble, and the crash of US real estate during the Great Financial Crisis just to name a few.
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There are segments of the stock market that have proven over time to deliver better results than the averages. This is backed by almost one hundred years of data and research across time periods and found in markets globally.
Exposure to these parts of the market, known as factors, in a cost-effective way can provide higher expected returns rather than just settling for market returns. The caveat is that you have to be a long-term investor to capture these premiums and the patience required for most investors is maybe the hardest part. If it was easy every investor would be doing it.
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Do you have a strong financial structure? Are your short term priorities protected from bad markets, acute distress, or high inflation? Are you underinvesting for your long-term priorities? Do you hold too much cash? A clear and quality financial structure addresses every single of these concerns and increases financial wellness. This is how you build a better investing experience.
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Jumping in and out of the market is a fool’s game and that shouldn’t be thought of as a negative at all. It’s an opportunity to reframe and focus on what you can control when it comes to investing. This includes tax efficiency and minimizing costs, but also goes deeper into diversification and properly protecting your financial house from uncertainty.
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