How To Invest Better & Why The Best Investments Are Boring

The stock market has taken most investors on a wild ride over the last few years. Now, it seems like every day, a well-intentioned investor is reaching out for help with making better investment decisions. With this in mind, I want to share my four pillars of investing better. If followed, this financial guidance could help you better invest your money over the long term.

Investing may be boring, the results can be fabulous.


While I’m sure you’d love for me to blather about the perfect stock portfolio or some other nonsense, if you didn’t handle the portfolio properly, you could still turn a big winner into a big loser. Most of the time, great investments are relatively dull. Ok, being a great investor is usually boring. Warren Buffet isn’t sitting around day trading every day. He spends exponentially more time reading financial documents than trading, and I will go on a limb and guess that most of you would find reading that level of financial documents anything but fun.

Working to achieve financial freedom may not be the most exciting thing in the world, but reaching that milestone sure feels good. Saving money may not be sexy. As far as investing goes, the more boring, the better.

Investing well doesn't have to be stressful.


How Can You Reduce Your Investing Stress?

Many people find market volatility stressful. There seems to be a never-ending stream of bad news pointing to an impending crash of life as we know it. Most financial advice you will find online (or in the news) is not tailored to your specific needs or financial goals.

I will share four basic pillars of investor success to help ease some of the investing stress. These are tips that I think anyone can follow and apply to their specific situation and financial goals. With these four steps for investing success, it will be nearly impossible not to achieve financial freedom, provided you save enough and give your investment enough time to let compound interest work its magic.

The 4 Boring Pillars Of Investing Success

Following these four tips will help you invest better and make it easier to reach financial freedom. These investing tips may seem boring, but they will leave you more time to enjoy life with your family and friends. They should also leave you with more money for that additional time.

1. Invest Regularly

When you set up automatic contributions to your investments, you will buy more shares when prices are low and buy fewer shares when prices are high. More importantly, you will continue to buy investments when the sky seems to be falling.

Do you know how amazing your returns would have been if you had kept putting money into your 401(k) each paycheck through the financial crisis? COVID Pandemic? And every other reason people found to panic out of markets?

People like me did it, and let me tell you, the investment returns look great. Setting up automatic contributions means you don’t have to think about it. It also helps to ensure you continue putting money in when times get scary.

This boring pillar of investing success is often called dollar-cost averaging. It doesn’t eliminate investing risk but increases the odds of reaching your financial goals. It should also help lower your stress level when investing.

Diversification is your friend when investing.


2. Have A Diversified Investment Portfolio

As the saying goes, don’t put all your eggs in one basket. If you consistently invest in a single company and they go bankrupt (or run into trouble), you could see your investment get killed.

Diversification won’t eliminate volatility in your investment portfolio, but it will essentially eliminate the risk that your money will go to zero. I guess it is possible that every company in the S&P 500 could go bankrupt in a single day. If that happened, we would have bigger issues to deal with than your nominal investment returns.

You may think a company is amazing because the stock price has been skyrocketing. However, owning stock in only one company (no matter how fabulous you think it is) dramatically raises your risk of losing all your money. If you aren't diversified, you are likely speculating rather than investing. Also, the more a stock goes up, the greater the chance that the value will decrease in the future.

3. Rebalance Your Portfolio Automatically

Typically, rebalancing is done once a year. Most of the time, you can set this up to happen automatically at some regular interval, for example, annually. If you never rebalance and the stock market goes up, you will end up with a riskier portfolio than what you initially set up. This could leave you getting hit harder if the stock market eventually takes a dip.

On average, the market has a 10% dip about once per year. That shouldn't be a cause for concern but something to be aware of. These temporary dips don't matter much if you can ignore them. They can be devastating if you freak out and sell good investments at a discount, only to repurchase them later at a premium. Or worse, sell and then put that money under a mattress or deposit it in a low-interest bank account where it will languish.

Conversely, if the stock market goes down for a bit, you could end up with a more conservative portfolio than is appropriate for you. Additionally, you could miss out on gains when the market rebounds. Rebalancing resets the portfolio to the risk level you started with. It also helps you buy low and sell high over time.

4. Avoid Continuously Messing With Your Portfolio

Even if you were able to pick the perfect investment portfolio, guaranteed to get amazing returns, someone would still find a way to screw it up.

Historically, the S&P 500 has earned around 11% annually over the long run. The average investor doing it alone typically ends up getting something like one-third of that total return over time, according to the DALBAR studies . The study is released every year, but the results seem to be similar year in and year out.

Whether the market is going up or going down, some people make the dumbest financial moves. Those decisions would kill their financial returns even if they were lucky enough to pick the best investment options available at that time.

The bottom line is set up the investment success pillars one through four. Have them work automatically and let them do their thing. You will be on track for financial freedom before you know it.

Investing success is often much more about avoiding big investing mistakes than being able to perfect the time to buy and sell a specific investment. These boring pillars of investing success can help you avoid some of the most common investing mistakes.

For extra credit, talk with a fee-only fiduciary financial planner to determine how much you should invest each month and where in order to reach your personal financial goals. Hopefully, they will also throw in some valuable tax planning to help you reach financial freedom faster and easier.

By David Rae, Contributor

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