Everyone has their opinions and beliefs. Some are based on facts. Others are based on some aberration of our mind.
Investing is full of facts. The relentless stream of data can be used to argue anything. And it’s used to support every opinion possible because facts can say whatever you want them to say.
Your job and mine is to come to some consensus about what to believe or not. Below, I’ve laid out some of my own beliefs developed over the years. You can decide which is more opinion than fact.
“It depends” is the answer to every financial question.
Everything around investing, finance, and money comes with a range of possible good answers. Each one has a tradeoff. Rarely is there one right answer, and that goes for your specific situation too. It’s very likely you’ll have to weigh multiple good options.
Active vs passive is a pointless debate.
The “debate” is a marketing tool to promote index funds. Guess what? It worked. The world is flush with index funds of all kinds. Sadly, passive investing doesn’t exist. You’re either more or less active. And most of the passive argument can be explained away by high costs, high taxes, and career risk.
Fees are an overlooked area of your portfolio. And some of those purported passive index funds cost as much or more than active funds. Most investors can improve their total returns by simply lowering costs.
Lowering your fees today will grow your wealth by an equal amount going forward. If you don’t believe paying 1% more in fees will do much, ask yourself what that fund company thinks about 1%. They seem to do well charging 1% more in fees.
Returns after taxes and fees matter more.
If you’re only worried about paying lower taxes, you’re going about this all wrong. You can say the same about lower fees.
First, paying a higher cost to get a higher return after taxes and fees is worth it every time. Second, people abhor the idea of higher taxes.
Guess what? Your goal is not lower taxes. It’s higher after-tax returns.
I’ve explained our tax system before. It’s fairly basic in its complexity with tax advantage accounts, tax credits, deductions, and how different assets are taxed, which you should take full advantage of by the way.
Generally speaking, if you’re paying more in taxes, it’s because you’re making more money. And if you’re income is rising, so is your after-tax income. That’s a good thing. Don’t believe me? Then you have two options to avoid more taxes: not make money or tax evasion. I don’t suggest either.
Meeting inflation is your worst case goal.
Remember, when your grandparents talked about buying bread for a nickel and walking two miles to school uphill both ways.
They lied. The walk was never that long. Bread was a nickel.
Since then, inflation has destroyed purchasing power and will continue to do so. At the very least, your money needs to grow with inflation so you can afford the inflated bread prices of the future.
A “best” investing strategy doesn’t exist.
However, there are several good strategies that work very well. The “best” strategy for you is the one that you can stick with in good times and bad.
The process is more important than the outcome.
If your strategy is sound, focusing on the process will take care of the outcome (the returns) and provide an opportunity to hone the process. Focusing on the outcome doesn’t really tell you much, well, except the results.
Behavior impacts returns greatly.
Good behavior improves returns. Bad behavior destroys returns. Thinking you’re above it all, dooms your results.
Most things move in cycles.
Markets, the economy, businesses, investor sentiment, and political winds are all cyclical. Like a pendulum, the cycles tend to swing just a bit too far in one direction before turning to swing just a bit too far in the other direction. For many reasons, each cycle can never find a happy middle ground. Investors who ignore this will repeat the worst cycle of all – buying high and selling low.
Stocks are the best way to wealth…period.
Stocks are businesses. This gets lost in the growing focus on funds.
The idea that stocks are not the best is like saying bonds (or other non-equity assets) will outperform business growth, innovation, and disruption going forward.
I don’t believe it. Stocks may not be the best all the time, but they are the best over time.
Volatility is definitely not risk.
Let’s be honest. Nobody worries when prices swing higher. They only care about the swing lower. At best, volatility is a sign of temporary uncertainty or opportunity. Frankly, people who care about volatility will never see opportunity staring them in the face.
Price always matters.
The separation of price from value drives good and poor returns. Expected returns rise as price falls further from value. Expected returns fall the further prices rise above value. Neither predicts an immediate change, but only a change over time.
A funny thing happens when you focus on price. You can build in a margin of safety that tends to act as a floor most of the time, which offers protection from permanent loss.
The markets always offer a reason to be fearful.
The financial media focuses on bad news because fear drives eyeballs. They’re the epitome of opinions disguised as facts. If you sell every time something bad might happen, you’d never be invested. Don’t pay attention. It’s best to ignore it.
Diversification only works if you’re willing to accept average.
Diversification has a fun way of never getting the best returns or worst returns any year, but over a long period you end up doing quite well. Most people get in trouble when average is no longer good enough.
The market always offer a reason to be greedy.
A new fad or hot stock is around every corner singing a sweet siren song. Do I really need to explain what happens next?
Investing should be simple.
Investing is the only place where complicated is consistently viewed as better. More complicated strategies, complex funds, and formulas abound then every before. Investors eat it up because that new low volatility leveraged long short alternative beta fund produced market-beating backtested risk-adjusted returns.
Please. This is so wrong, its silly.
If you’re sticking with a strategy, following and honing the process, then you should be simplifying it over time. There’s never been a better time to simplify investing than right now.