Investing Made Easy?

By David Ashby, CFP®, CPA, Mustard Seed Wealth Management

A current TV commercial pictures a husband and wife having a brief financial discussion as he is gathering up his golf clubs to go play a round. He’s just recently retired and she remarks that he’s playing more golf than ever. She asks about their financial plan in retirement, and he holds up his phone, telling her “it’s all right here!” He’s got a new program that allows him to trade stocks, even while on the golf course. “But you’ve never traded stocks before,” she remarks. “It doesn’t matter; the program takes care of everything! Even if the market is up or down.” While the commercial doesn’t say it, the implication is that you will consistently make money in both up and down markets

Another commercial pushes the trading of options. A stock option gives you the right to buy or sell a share of stock at a certain price for a certain period. It’s a way to greatly magnify gains on your money if the stock moves in the right direction. It’s also a way to greatly magnify losses if it moves in the wrong direction. Both commercials leave you with the impression that, if you buy our product, you’re going to make money! And that’s just two of the many that are out there touting ways to profit from the market. “Join our club for the latest hot stock tips!” Or “buy our newsletter and get ahead of the curve”. Generally, it pays to be wary of someone promoting how to get rich and selling you the secret for only $19.95!

If only investing in the market and gaining wealth were that easy! On the other hand, it’s not really all that hard. But it requires patience and discipline, traits we are often not good at. Gaining wealth is somewhat like losing weight. We want to get results quickly. Maybe you’ve been on one of those diets where you quickly lost 15 pounds, only to put it back on over time. But weight loss professionals say the best way is losing the weight gradually, not suddenly, and adopt a permanent change in habits.

In a similar sense, growing wealth is best done over time as opposed to chasing get-rich-quick products. David Booth, co-founder of Dimensional Fund Advisors, gives some basic principles in his recent book, Stay Calm. As the title implies, a key to successful investing is to avoid letting short-term emotions change your long-term plans. Booth encourages investors to “tune out the noise”. “Noise” includes the financial media whether in print or other means. Avoid reacting to the latest headlines. Have a plan to get where you want to go and stick to the plan. That doesn’t mean never making adjustments. You want to be flexible as your situation in life changes. But if you’re adjusting your long-term plan on a frequent basis, you’re probably reacting to noise.

Booth also encourages diversification. Don’t put all your eggs in one basket. You might think you can predict the next Walmart or Amazon or Nvidia. But the odds are against it. While Dimensional’s mutual funds have an admirable record of investment performance, the company has a room with one wall papered over with stock certificates of companies that went bust! Even the professionals can frequently get it wrong. There are many good vehicles out there that allow you to diversify your portfolio and avoid the risk of a single company. These few simple principles give you an excellent chance of a long-term successful investing experience. Stay calm!

About the Author: David Ashby, CFP®, CPA, is with Mustard Seed Wealth Management in Texarkana. Read his previous TXK Today column, “If There’s a Bustle in Your Bond Fund!”, and learn more about Mustard Seed Wealth Management’s Texarkana location.