3 Simple Investing Concepts that Can Increase Your Chance of Success

The investing world can at times seem very complicated.? There is constant media noise and a seemingly never-ending list of new ideas or strategies.

That said, I think there are simple investing concepts that if followed can increase your chances of success.

Here are just 3 of these concepts.

1. Global and Asset Diversification

Let’s take a look at the following chart showing various calendar year returns for different geographies:

Here is another way to look at the same concept across asset classes:

What is the point of these charts?? Quite simply, it is that diversification is a key principle in reducing your investing risk.? Evidence has repeatedly shown that diversification reduces the amount of risk that you are exposed to.? To me, there is no pattern visible in these charts, meaning that it is very difficult to predict next year’s, or next decade’s, winners or losers.

Diversification, or simply not putting all your eggs in one basket, is a key principle to constructing an investment portfolio that can weather these ups and downs across specific types of assets that you own, geographies, industries, company sizes, etc.

Trust me, I’m not the first one to say that diversification is your friend.? But it is such a foundational concept that it is worth reiterating.

Consider the risk with a highly concentrated portfolio of only a few stocks.? If any of them do not perform as expected or hoped, your entire portfolio will be dragged down.? The greater the number of holdings in your portfolio, the less the risk one single investment has on your entire success.? The opposite may also be true, in that a highly concentrated portfolio increases your chance of outperforming a benchmark. However, evidence has shown that over a long period of time, it is hard for concentrated portfolios to continually outperform.

2. Understand Your Timeline And Stick To It - Be Patient!

It is hard to avoid the noise around investing whether it comes from media or simply conversations with families and friends.? It is vital to make sure we aren’t comparing ourselves to others who have completely different objectives and goals.? We need to be aware of our own timeline and not be playing someone else’s game.? ?

Consider this chart from Fidelity Investments Canada that shows the ranges of outcomes for Canadian equities, U.S. equities, Global equities, and Canadian bonds over various rolling time periods.

On the short end, we have large ranges of outcomes; however, as we move over longer time periods, history has been in your favour.

With that in mind, we need to understand your timeline with your investments.? Is this money you need in the next year or two, or is this money socked away for long-term retirement or other savings?? Understanding this should greatly dictate how that money is invested.

From there, in order to capture the market returns, we have to be consistent with our investment process and philosophy.? Consistently implementing an investment strategy constructed on your objectives and profile allows you the best chance of being successful.? Planning and consistency let you stick with the process through the ups and downs, taking emotions out of decision-making.? ?

Darcy Howe with Merrill Lynch said: “I’ve always felt that investing is like a bar of soap.? The more you handle it, the smaller it gets.”

Two good ways to stick with it:

1. I don’t believe in trying to time the market.
2. I don’t believe in trying to find "flavour of the month” investments

Not only do we have to correctly time when to sell, but we also have to correctly time when to buy.? Nearly impossible to do it well over time.

3. Use Evidence to Stay Disciplined

Think of most other professional disciplines.? Engineers, doctors, lawyers, accountants, etc.? Would any of them use strategies based on sales tactics, gut feelings, or flavour of the day?? I would say (hopefully) not!? Considering I used to practice as an engineer, I can speak to this from personal experience.

So why would we do that with your portfolio?? You can apply the same disciplined and evidence-based approach to investing.? No one can predict the future, but we can use historical evidence to construct a portfolio and plan that is appropriate for you.

There is a lot of evidence we can turn to.? The financial planning discipline can use evidence to determine which plan type to use, how to mitigate lifetime taxes, estate planning, creating an investment portfolio, and more.

Considering just your investment portfolio, examine what the evidence is for an investment, the source of its claim, and whether it is suitable for you.? There will always be an investment strategy that people are talking about and there will be the urge to fight the fear of missing out.? My philosophy is to avoid that and help you stay consistent in your investments.? ?

Asset accumulation does not happen quickly but rather occurs through diligent decisions compounded over a long period of time.

This list is by no means all-encompassing, but rather simply three key principles to keep in mind.

Construct your investment strategy with your advisor or make sure it is aligned with principles for investments that are suitable for you.

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