“How do I make money in the market? What stocks should I pick? What makes a great investor?” I am asked variations of these questions as soon as someone finds out that I work in the investment industry. To the dismay of those inquirers, my answer never includes a special stock pick nor trading strategy that will lead to untold wealth and treasures. The real secret to investment success isn’t a secret at all: relentless consistency and discipline over time. While not flashy (or fame-inducing), the tools and techniques necessary to reap the benefits of market performance are there for the taking, as long as you have the temperament to stick with it.
Until recently, the tools needed to build a globally diversified, low fee, easy to manage investment portfolio were:
The internet and, more specifically, the discount brokerage revolution (think Schwab, Fidelity, TD Ameritrade, E-Trade) democratized access to the tools/funds/technology for investors to do-it-themselves. This competition brought about the advent of commission free trading* and (most importantly) availability of extremely low expense ratio mutual funds and ETFs on all/most platforms, allowing investors to access market returns at unbelievably low costs.
It has been extraordinary watching John Bogle’s vision of providing ALL investors with the low-cost tools necessary to build a portfolio become reality industry-wide. This recent book discusses just how large of an impact John Bogle had on our industry - for the better: The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions
This section really should be titled “Technique” because there is really only one technique that has worked consistently for investors over time: buy low-cost funds/ETFs, diversify globally, and stick to your plan when market turbulence arises.
If you prefer reading a book vs. this one sentence summary, here is a good one published earlier this year that does a better job than I ever could of explaining this topic: Just Keep Buying: Proven ways to save money and build your wealth
All the tools and techniques in the world can’t make up for our ability as humans to be our own worst enemy. The real secret to investment success over time isn’t based on numbers, but rather your behavior, patience, and discipline. If you simply stay in the game, you can have extraordinary results. The following two books do an incredible job of talking through the psychology of investing and why this is an uphill battle, for novice and seasoned investors alike:
So how do I answer those three questions we started this post with?
The real question one needs to ask, that is difficult to answer, is "Do I have the temperament to do this on my own?" While I lean yes and believe most investors don't give themselves enough credit for what they are capable of doing, I also understand my own shortcomings... and as such, have a few advisors myself that I call when my emotions get the best of me.
*While trading is commission free, there are additional costs to be aware of, including bid/ask spreads, purchase prices above net asset value for ETFs, and payment for order flow (PFOF).
Disclosure: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors. Frankly Finances is a registered investment advisor with the state of Florida and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure for additional information regarding the qualifications and business practices of Frankly Finances.