Let's face it -- some investors just do better than others. It might take some of them more time or require an unpopular track to achieve those superior results. But, in that the best possible net returns relative to a given amount of risk is the ultimate end goal, it only makes sense to do what works best.
With that as the backdrop, here are three not-so-secret secrets that the world's best investors know, and act upon even when it's tempting not to. In no particular order...
1. Less is more
It's a tired (and somewhat overused) cliche. It's a cliche, however, for all the right reasons including the most important one... it's absolutely true, particularly as it pertains to investing.
It's also a vague view without a deeper explanation. So, for less experienced investors, here's the overarching basis for the "less is more" lesson: Buy and sell less frequently, and hold more of your stocks for longer periods. Not that you shouldn't adjust as needed should things change in the meantime, but as a rule of thumb you should be thinking about holding periods of at least five years before stepping into a stock.
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It's a toughie to be sure, and the financial media generally doesn't help. Much of cable TV's market coverage as well as the web's constant updates make it sound as if constantly swapping stocks is the best path to wealth. It isn't. That commentary is largely meant to draw a crowd to deliver advertisements to. Sound investment advice, however, generally doesn't draw and excite a crowd. It's a problem simply because investors often make short-term buying and selling decisions at the worst possible time for the worst possible reason, trading away profits right before or right after they're reaped.
2. Simpler is better
The longer you're an investor, the more investment prospects other than stocks you'll come across. Cryptocurrencies have been one of the hotter alternatives of late, while equity and index options seem to be perennial favorites for folks looking to squeeze a little more out of the market. Commodities like gold and even physical real estate also seem to cyclically catch people's eyes when the stock market feels like it's running out of steam.
However, many of these manias are gimmicks mostly meant to enrich the people pushing them rather than grow wealth for the investors risking their own capital on them. Like most fads, these manias tend to fizzle out right around the time the masses are just starting to file in.
Your best bet is keeping things simple by sticking with stocks... instruments that have withstood the test of time. They're not always the best performers in the near term. They tend to be the best performers for the long haul, however, because they're stakes in companies you can see, understand, and evaluate their earnings. The same can't be said for cryptos, or even many commodities.
3. Time is your best ally
Finally, the world's most successful investors understand that the biggest returns are reaped by leaving stock holdings alone for years on end. That's true even in the years when stocks -- or one particular stock -- are struggling. The biggest paybacks materialize during the last portions of a holding period in which gains are reinvested in the market.
Some number-crunching puts this reality in perspective. Say you're contributing $10,000 per year into a fund based on the S&P 500 index (^GSPC 0.87%), earning an average return of 10% per year, and reinvesting any given year's earnings. At the end of 30 years, you'd be sitting on a nest egg of just over $1.8 million. The thing is, around $1 million of that total nest egg didn't take shape until the last eight years of that 30-year stretch. It took 22 years to build up an asset base to take meaningful advantage of the S&P 500's long-term average return.
Here's another example of the power of sheer time: Even if you only contributed $10,000 per year to an S&P 500 index fund for 20 years and then just let it ride without any fresh capital being added for the next 10, you'd still end the 30-year stretch with a little over $1.6 million. If you cashed just after the 20 years of annual contributions of $10,000 though, you'd only walk away with about $630,000.
The moral of the story is, get in and stay in for a long as you feasibly can, so you can earn money on as much of your previously earned returns as you can.
