Too many investors are concerned about factors that are beyond their control. It is important to recognize what you can and cannot control.
There are a lot of things that matter to investors. Just a few of them include:
Economic growth, the business cycle, Inflation, Interest rates, Commodity prices, Technological innovation, Corporate earnings, Geopolitical events, Elections, Fed policy, New legislation among many others.
All of these factors will affect your portfolio in one way or another but none of them you can control or predict.
So, why would you waste spending so much time on them?
People believe they are so important that they have to guess them but the intelligent investor is limiting his guesswork. Instead he focuses on the things he can control.
Here are 7 important factors that influence the future value of your investment portfolio and you can control:
1. Investment amount
2. Period of compound
3. Asset allocation
4. Selection
5. Discipline
6. Cost
7. Taxes
As you are able to control these 7 important facts, you should do the following:
1. Invest as much as you reasonably can
2. Leave it to compound as long as you can.
3. Choose an asset allocation that reflects your age, experience, risk tolerance and time horizon.
4. Select quality, diversify among different asset classes and look for low cost, and tax efficiency.
5. Establish a sell discipline (e.g. annual rebalancing and/or trailing stops…) to protect your profits and limit your risk.
6. Reduce your costs as much as possible
7. Tax-manage your portfolio to keep as much of your gains as possible
If you follow these 7 basic steps, you will do better than 95% of investors and almost certainly reach your investment goals. You’ll also reduce stress and anxiety because you are focused on what is most important and within your control.