Here are the investing commandments I try to live by.
The first one came to me in a dream 😄 I woke up at 5:30am and wrote the rest down straight away. Almost as if I was a vessel for a higher power!
I am now on the lookout for a burning bush…
Speculating is not investing, it is gambling.
It doesn’t matter how many fancy screens you have, or the hours you’ve spent analysing candlesticks, it is a different game to investing.
You are simply betting on which way the price of an asset will go – as detailed in the next commandment, you cannot know this without a crystal ball.
Investing, on the other hand, is curating a diversified basket of assets and holding them over the long term – whilst ignoring short term movements in price.
The future is unknown.
Stock markets are unpredictable.
No one can predict with any certainty as to what will happen.
If I had told you in 2019 that there would be a global pandemic, what would you have predicted?
The odds are, like most pundits, you would have predicted financial armageddon – I sure did! I held spare cash in my pension awaiting the ‘inevitable’ second dip in 2020…
In hindsight that was a mistake, my portfolio continued to soar throughout 2020 with that cash sitting on the sidelines.
I didn’t follow my own commandments and I paid the price.
Whilst tempting, try to avoid making predictions – the future is unpredictable.
Even worse than making your own predictions, please do not be swayed by others! Financial pundits constantly cry wolf.
Just remember, a broken clock is right twice a day. There is typically a 10% downturn each year, so they’ll eventually ‘be right’.
There is only one prediction I will make:
“Stock markets will be higher in 20 years time than they are now”Tom Redmayne
Feel free to quote me on that!
The reason I make this prediction is because the historical evidence shows us that it has always been the case:
Over any 20 year period the stock market has achieved positive growth, as detailed above!
To explain the graph, in any 1 year period, the S&P 500 is up 75% of the time. In any 10 year period, it is positive 94.28% of the time and once you hit 20 years, it is 100% positive across any 20 year period.
Those 20 year periods include, but are not limited to:
- The great depression
- World War 2
- High inflation
- The tech bubble
- 2008 housing crisis
If you want to build real wealth, and not work forever, then your money needs to be working for you. Therefore, you need to avoid non-productive assets and invest in productive assets.
Gold has never worked a day in its life, it has just sat around for three billion years. It does not compound, it does not produce anything. It just sits around being scarce.
Equities, on the other hand, work for you 24/7. They are real life businesses offering products and services to real people.
Put your money to work. Don’t let it languish in non-productive assets.
This one should be obvious but I’m afraid people are emotional creatures. It is important to understand that being irrational is in our nature. Once you acknowledge this, it becomes easier to stop yourself making emotional errors.
As investors we are often our own worst enemy.
For example, I was working at HL during the crash of 2020 and spoke to multiple people who sold on the way down.
They all said something similar:
“I’ll sell now, then buy back in when the market recovers”HL Clients
They acknowledged to me that the market would recover, but the emotional pain was too great! They would rather sell when the market was low and buy back in when it was higher.
It is completely irrational, but if you empathise with someone seeing their net worth plummet, it is emotionally understandable.
Whilst understandable, it is our job as investors to not allow our emotions to lead us towards financial ruin. Buying high and selling low is financially destructive.
If you find yourself wanting to sell during a crash, please take a step back and… breath.
Remember, all market declines are temporary. They are baked into the stock market. If you look back across history, you will see that a market decline is often followed by the stock market reaching new heights.
Hold tight. Don’t look at your portfolio. It will be OK.
We know this. Media companies are not on our side.
They all produce a negative news cycle that plays on our emotions. Delete their apps from your phone and generally avoid the negativity they constantly pump out. It will make your life more pleasant!
GameStop. Meme stocks. Crypto sh*t coins. Squeezing silver. Buying oil because the US bombed Iran. These are all trends which are financially destructive.
If you are chasing someone else’s past gains or acting on a third party tip then you are too late!
To quote Margin Call:
“Be first, be smarter or cheat”That guy from Margin Call
The first two are hard to do and good luck with the third one – I wouldn’t recommend it!
If you chase every trend you are actually chasing financial ruin, and I’m afraid you might find it.
Ignore the noise. Don’t give in to FOMO. Stick to a sensible, evidence based plan for wealth creation.
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Enjoy the rest of the post 😁
Speaking of evidence-based plans for wealth creation, here it is!
Global equities = the best businesses in the world, producing real products and services for real people.
As we know, we cannot predict the future, so it is not wise to only choose a handful of companies to invest in. It is much smarter to buy a lot of them and hold for the long term.
The cream always rise to the top.
When you invest in equities you are setting yourself up to benefit from the magic of compounding (money making money). Einstein called compounding ‘the 8th wonder of the world’ and he was a pretty smart chap!
When investing in our global basket of equities, we want to keep our costs down. Equities compound, costs negatively compound.
If your fees are too high, then your investment growth will be stunted.
Luckily, there are lots of options out there to invest in a low-cost manner. You want to look out for:
- Platform fee (the charge from the company holding your investments – eg HL, Vanguard etc)
- Fund charges (there are a few, annual fee, transaction fees etc – check the KIID)
- Dealing charges/other admin
Try and keep these charges as far away from 1% as possible! I think my ISA charges are about 0.35% all in.
Think decades, not days.
Once you have shifted your focus it is much easier to not worry about short term volatility, or the latest trends.
Investing is a long term game. It is about building wealth to generate yourself an income in the future.
My number one top tip for those looking to invest. Automate!
Set up a monthly deposit, ideally on payday, and then get on with your life. Check out my post, Automation is King, for more details.
The second step to this commandment is to increase the level of your contributions whenever possible – it will have a startling effect on your wealth creation!
Quick maths to demonstrate the importance of increasing your contributions:
|Monthly Investment||Value After 30 Years|
|£200, no annual increase||£243,994.20|
|£200, increasing contributions by 10% each year||£834,769.40|
A mind boggling difference! And it isn’t hard to do. The first year you invest £200 a month, in the second year £220 a month and so on.
(In an ideal world your earnings will increase more rapidly, allowing you to invest more in a shorter timeframe).
I saved the most important until last, follow the above commandments and then get on with your life!
Do not waste hours of your life going over and obsessing over investing. There is more to life than money.
Money is simply a tool to help you live the life you deserve. Investing helps you ensure you have enough money to do so until your dying day!
Decide what a good life looks like to you then go and live it, with your investments ticking away in the background.
Knowing I have my monthly investments sorted means I fully enjoy the present.
Thanks for reading,
Financial Planner-in-waiting/Burning bush enthusiast
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