Developing and Testing Your Investing Beliefs
What are your investing beliefs? Most investors haven’t taken the time to consider that question, let alone answer it. During the sharp stock market slide in 2008, some investors started following particular gurus who claimed to have predicted the financial crisis. And then the 2020 COVID-19 pandemic and government-mandated shutdowns really set investors on edge due to the surprising nature of that episode. These investors wanted to believe that someone out there could predict important financial events and tell folks how to time their investments to benefit from what was about to unfold.
Such market timing is a fool’s errand. It sounds possible — and we’d like to believe that it is — but it’s not possible on the scale various charlatans would have you believe. Furthermore, many of those who boast the loudest about their market-timing ability are worse than average at it.
It’s challenging to work with someone on his investments when he has little in the way of background and beliefs. As someone seeking to educate yourself about investing, you may have a better idea of your investment beliefs than other investors do. To help you along in this process, here are some beliefs for you to consider:
Your own personal comfort matters. A wide range of investments are available to you, including stocks, exchange-traded funds (ETFs), mutual funds, real estate, and small business. Some folks are simply more comfortable with particular investments, so you shouldn’t force yourself into a portfolio that’s recommended as being best for you. Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and ETFs is both time-efficient and profitable. Real estate investing and running a small business are the most time-intensive investments.
Costs matter. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don’t fall prey to thinking that you get what you pay for. Take advantage of tax-deductible retirement accounts, and understand the effect of your tax bracket when investing outside tax-sheltered retirement accounts. Minimize your trading. The more you trade, the more likely you are to make mistakes. Also, you suffer increased transaction costs and higher taxes for nonretirement-account investments.
Market timing is much harder to predict than folks realize. Don’t bail when things look bleak. The hardest time, psychologically, to hold on to your investments is when they’re down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don’t sell when there’s a sale going on; if anything, consider buying more. Ignore soothsayers and prognosticators. Predicting the future is nearly impossible.
There are better times than others to sell. When you’re really feeling good about an asset class like stocks, and those assets have had a multiple-year run and are getting widespread accolades, that’s a good time to lighten up if you have other good reasons for doing so. By contrast, you can bump up your stock allocation if you’re comfortable doing so after a major market decline.
Think long-term. Because ownership investments like stocks, real estate, and small business are more volatile, you must keep your long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them for a minimum of five years and preferably for a decade or longer.
Diversify. Diversification is a powerful investment concept that helps you reduce the risk of holding more-aggressive investments. Diversifying simply means that you hold a variety of investments that don’t move in tandem in different market environments. When investing in stocks, for example, invest worldwide. You can diversify further by investing in real estate.
Emphasize value. Over the long term, value-oriented investments tend to produce higher returns with less volatility than do pure growth-oriented investments.
Ignore the minutiae. Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand, which are influenced by thousands of external issues, including millions of investors’ expectations and fears.
You are what you read and listen to. Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity.
Praise for Eric Tyson
“Eric Tyson for president! Thanks for such a wonderful guide. With a clear, no-nonsense approach to … investing for the long haul, Tyson’s book says it all without being the least bit long-winded. Pick up a copy today. It’ll be your wisest investment ever!”
— Jim Beggs, VA
“Eric Tyson is doing something important — namely, helping people at all income levels to take control of their financial futures. This book is a natural outgrowth of Tyson’s vision that he has nurtured for years. Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.”
— James C. Collins, coauthor of the national bestsellers Built to Last and Good to Great
“Among my favorite financial guides are … Eric Tyson’s Personal Finance For Dummies.”
— Jonathan Clements, the Wall Street Journal
“In Investing For Dummies, Tyson handily dispatches both the basics … and the more complicated.”
— Lisa M. Sodders, The Capital-Journal
“Smart advice for dummies … skip the tomes … and buy Personal Finance For Dummies, which rewards your candor with advice and comfort.”
— Temma Ehrenfeld, Newsweek
“Eric Tyson … seems the perfect writer for a … For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English… . It will lead you through the thickets of your own finances as painlessly as I can imagine.”
— Clarence Peterson, Chicago Tribune
“Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there. It’s a painless way to learn how to take control.”
— Karen Tofte, producer, National Public Radio’s Sound Money
More Best-Selling For Dummies Titles by Eric Tyson
Personal Finance in Your 20s & 30s For Dummies
This hands-on, friendly guide provides you with the targeted financial advice you need to establish firm financial footing in your 20s and 30s and to secure your finances for years to come. When it comes to protecting your financial future, starting sooner rather than later is the smartest thing you can do. Also check out Personal Finance For Dummies.
Mutual Funds For Dummies
This best-selling guide is now updated to include current fund and portfolio recommendations. Using the practical tips and techniques, you’ll design a mutual fund investment plan suited for your income, lifestyle, and risk preferences.
Home Buying Kit For Dummies
America’s No. 1 real estate book includes coverage of online resources in addition to sound financial advice from Eric Tyson and front-line real estate insights from industry veteran Ray Brown. Also available from America’s best-selling real estate team of Tyson and Brown — Selling Your House For Dummies and Mortgages For Dummies