Hundreds of academics in thousands of studies have come to some powerful investing conclusions:
- The best way to capture market returns is to participate in expected long-term growth of the global economy. This insight comes from the evidence indicating that markets are functionally efficient as they drive our capital economy, delivering wealth to its body of participants over time.
- Because risk and reward are strongly related, they need to be deliberately managed to reflect your unique goals. While the market as a whole is expected to deliver wealth to its body of participants, clearly, there are individual winners and losers. The greater the expected return you seek, the more market risk you must accept … but only to the extent that it makes sense for your personal needs.
Diversification helps dampen market risk. Diversification is another potent ingredient in managing market risk. Through broad and deep diversification (i.e., not just holding a number of securities but ensuring they are spread among a number of market factors), the sum of your whole risk can actually be lower than its individual parts.
Despite reams of evidence to the contrary:
- The largest swath of the financial community earns its living on the commissions made when you place trades – whether or not those trades make any sense for you.
- Many others build their financial business by selling complex products such as hedge funds, variable annuities and privately traded securities that require extreme, buyer-beware scrutiny. These risk-laden products and their hidden costs may or may not reward you, but they almost certainly will reward those peddling them.
Now that you know those essentials, the next step is to turn them inward. Has the bulk of your portfolio traditionally been kept aloft with attempts to move in and out of the market, its sectors or particular stocks? Are you forever rushing to catch up with rapidly moving returns or bypass troublesome turbulence?
Advancing instead according to the science of investing is the equivalent of turning your craft around and gliding with rather than against the powerful winds of trade toward your desired destination.
At Vestarter our investing course is determined by solid investing science. We would be pleased to welcome you aboard our journey to a better future for you and your family.