No complex strategies required, but it will take some patience and discipline.
I spoke last week about the dangers of trying to get rich in a hurry. In another bid to deter you from the get-rich-quick schemes, I want to elaborate on how you can create a realistic and straightforward investment plan that will generate fantastic returns over time.
Doubling a portfolio's value isn't nearly as unique as you might think. We tend to only hear about the outliers. Your friend who lost it all and now lives in his parents' basement or a friend of a friend who became a multi-millionaire from the stock market and now spends all their time on a Yacht in Monte Carlo.
The reality is, there is a beautiful middle ground that has resulted in the accumulation of considerable wealth for generations. No one ever aspires to be average, but in the investing world, the average long-term investor has generated enviable returns over the years, so let's focus in on the 'average' investor and ignore the headline-grabbing all-or-nothing outliers for now.
Taking the average annual return of the S&P 500 since inception (8% - a relatively conservative number), your portfolio would double in value within nine years. Now, you may not have the Yacht, but this decidedly more attainable approach will make an incredible difference to your financial future.
Let Time do the Work
Mike, not this again… Trust me, this one is worth repeating. If you are invested across a basket of stocks, LEAVE THEM ALONE… Give your stocks time to do what stocks eventually do: that is, go up. On an annualised basis, the S&P 500 has returned positive returns in 70 of its 94 years, producing positive annual returns 74% of the time.
Even if you don't buy into the statistical probability, the emotional trauma that comes from continuously watching your investment value rise and fall will make for a painstaking investment experience. Stop overanalysing the daily movements of your investment portfolio. Your head and your pocket will be all the better for it in the long run.
Admittedly, it's easier said than done. When an account's value stagnates for a little too long, we'll typically swap out recently poor performers with a more storied pick. All too often, though, the timing of those trades is precisely wrong. A red-hot stock is bought right as it's topping out, and a go-nowhere name is sold right before it resumes its forward progress.
Keep it Simple.
So many investing blunders come from investors over elaborating their approach. You don't need some proprietary algorithm to tell you what to trade; you don't need to invest on Margin or implement options trading to generate positive returns.
There are lots of common investing mistakes to avoid, such as not understanding what you're investing in or trading too frequently. There are also some risky investment strategies and techniques to avoid, such as buying into penny stocks or investing across geographical regions you know nothing about.
As a general rule of thumb, the more you naively think you are outsmarting the market, the more mistakes you are likely to make.
Keep it simple. As you're starting out, be patient, don't get greedy and focus on being 'average'.