Trust is a critical element to successful investing

Trust is a critical element to successful investing

May 26, 2016

Successful investing is based on trust.

Most investors define investment success as achieving their financial objectives.

Were you able to assist your children with the cost of a post-secondary education or retire with your desired lifestyle?

Set a financial goal that allows you to accomplish an important objective.

There are two critical elements

There are two critical elements to investing- an investment strategy plus the personal ability to stick with your plan.

Both aspects require trust.

A good investment strategy is important.

Your investment strategy should be logical and evidence-based.

The alternative is to invest in the “flavour of the month” and randomly purchase securities that are popular from time to time.

My recommendation is to have an investment philosophy that is sensible, persistent through time, and can be achieved with a cost effective, broadly diversified, portfolio.

Resist the temptation

Resist the temptation to alter your long-term strategy as a result of short-term normal market volatility.

There will be periods where your investment returns are not as strong as some other options.

That is normal and is to be expected.

Undisciplined investors sell securities after they have declined in value and wait until prices increase before buying back into the market.

Research shows that most people follow this approach and as a result have very poor investment success.

Trust is required to manage a successful long-term investment strategy.

Without trust you could make a strong argument to not invest in the market.

Personal discipline

A second element of trust is having the personal discipline to continue to be proactive at doing the important things that will lead you to success.

In this regard you must have the trust and confidence that you will do all the things in your control.

Maintain regular savings, control personal spending, and allocate your assets between stocks and bonds in accordance with your investment objectives and risk tolerance.

Be diligent to reducing investment fees and taxes.

Your journey towards financial success requires you to embrace the market and except normal volatility and uncertainty.

Manage your personal behaviour and trust that you will have long-term success.

A conversation that is normal between investors and their advisors is focusing on the short-term performance of investments. A more useful conversation is an open and honest conversation about the process of investing.

Identify strategies that can lead to your financial success.

Why do we have a long history of markets doing very well over time when individual investors do not?

‘Winners’ and ‘losers’

To be blunt, markets are “winners” investors are “losers”.

Spend more time considering how to be a successful investor. That is within your control.

Spend less time chasing the market and worrying about past short-term performance.

That is just noise.

Success will come from discipline. Success will come from doing what’s right.

Plan your strategy and most importantly maintain your conviction and trust that you are doing what is right.