Investing can get over-complicated in a hurry.
Passive Investing ETFs Account For 6% Of Market But Active Managers Still Rule
There's a near infinite amount of ratios, abbreviations, and investing strategies to learn. The reality is that only 2 items will determine the lion's share of your total returns:
- What percentage of your portfolio you invest in stocks
- If you avoid panic selling during stock price declines
Investing in individual businesses has historically substantially outperformed investing in bonds, commodities (including gold), or currencies.
There's a good reason for this performance. Investing in businesses allows you to benefit from ever expanding human innovation and efficiency. Other asset classes only let you own an inert 'thing' (be it gold, dollar bills, or debt in the case of bonds). Owning a stake in a business entitles you to the future growth of the business.
Investors who put a greater percentage of their portfolio in equities are very likely to outperform those with smaller percentages in equities over long periods of time.
There's just one problem... Stock prices fluctuate. The 'average' individual investor buys and sells at the wrong time - and their returns significantly under-perform benchmarks.
Too many investors think about stock price volatility the wrong way. Falling prices are like sales. They give you the opportunity to buy into great businesses when they are marked down.
Selling when prices are falling is like negotiating against yourself. You are essentially saying "I won't sell this stock at $100, but if you offer me $50, I'll sell then". That's not the way to improve returns.
If you are able to stand stock price fluctuations and hold during price declines (or better yet, buy more), you are highly likely to outperform your peers.
Of course, this sounds easy, but it isn't. You have to prepare yourself during the 'good times' to be ready for the 'bad times' in the market when prices are falling.
Beyond what percentage of your portfolio you invest in equities and avoiding panic selling, a few other things are important (but not as important as the previously mentioned items) to returns:
- What stocks you invest in (I prefer high quality dividend growth stocks, and for good reason)
- How much you pay in fees
- How much you pay in taxes
I believe investing in great businesses purchased at fair or better prices for the long-run is integral in creating long-term wealth in the market.
To that end, we publish the Sure Dividend newsletter, which has everything you need to build your high quality dividend growth portfolio - including the Top 10 dividend growth stocks trading at fair or better prices every month.
Thanks,
Ben Reynolds
Sure Dividend
