4 Simple Strategies for Investing Success

May 10, 2016
DMD Staff

For some, investing is almost like a sport — something to be actively managed and tracked. But what should you do if you'd prefer a more hands-off approach?

Investing strategy can take many different forms. Passive. Aggressive. Passive-Aggressive (just kidding). Long-term, short-term, buy-and-hold, churn and burn. If you want choice in investing strategies, you have plenty. But many retirement savers—particularly those who have busy professional and personal lives—should consider the beauty of simplicity.

We’ve talked about this strategy before, but it’s one we like to continue to come back to, because complexity often begins to creep into investment portfolios quietly and insidiously. Keep complexity at bay with these strategies.

1. Buy and hold. Sounds boring, right? For some, it might be. But buy and hold is simple. You do some upfront research in identifying a security—be it stock or bond—and then you…hold on to that security for a period of many years. They don’t make movies (like last year’s terrific

The Big Short)

about “buy and hold.” But it passes the simplicity test. More than that, it’s generally effective, although a quick Google search will feature many loud voices proclaiming that it is better to try and “time the market.” A vast majority of those voices belong to people who want to help you time the market. Listen with a great deal of skepticism and at your own peril.

2. Diversify by industry and location. We’ve talked about the different kinds of diversification. Two of the main kinds are by asset class and investment vehicle—stocks versus bonds, a money market fund versus a real estate investment. But there are simpler kinds of diversification, too. And while they may not offer as much protection as a variety of investment vehicles, diversifying by industry (healthcare, real estate, technology) or location (domestic/foreign, Western US versus national, etc.) offers a simpler way to find

a degree

of diversification. Talk to your advisor to see if these strategies might be a component of your diversification strategy.

3. Stick to the plan. Gee, this one sounds really simple. So why is it so difficult for so many? One reason is that the markets undergo a constant series of ebbs and flows. Many investors, feeling the need to take an active role in their portfolios and perhaps heeding the siren call of investment experts to rebalance their portfolios, often wander from their core investing principles while reacting to a short-term change. Rebalancing periodically is a good idea, but that doesn’t mean adjusting and adapting your current investment strategy to current market conditions. The market is cyclical and always will be; that’s the nature of markets. If your strategy is a good one, stick with it. Refine it as needed, and rebalance with care. But don’t lose your core objectives in the process.

4. Minimize the voices. We’ve all heard the cliché about “too many chefs in the kitchen,” and it is a very real plague in any decision-making process. Even if you work with a trusted advisor, make sure all the final financial strategy decisions are your own. And put a reasonable limit on the number of people providing you with advice. Yes, it can be good to have a second eye or ear helping guide you. But add a few more voices, and soon you’ll have a cacophony.