SIMC’s Top 6 Investment Principles for Individual Investors - Part I
(or What I wish I truly understood when I was 20.)
- This is part I of a 2-part blog. We’ll cover 3 principles today, and the other 3 next month.
- I am often asked what an individual investor should be focused on. In my mind there are about 6 key Investment Principles.
- Following these high-level principles will position one for long-term success in your investing activities.
Investment Principle #1:
Understand How Wealth is Built.
- Having a clear understanding of how to build wealth is the foundation for all investing.
- This is how most people get their wealth: they earn, save and invest.
- Although it is simple, it is very hard to do effectively. (See Investment Principle #2)
There are a couple of nuanced sub-strategies you can try as well.
- Take on risk with regards to your career: Become an entrepreneur for example. Best done in the early stage of your working life as you will have time to recover from any setbacks.
- Delay consumption, save and invest: Wealth is what you save from delayed consumption combined with earnings on those savings. Another way of saying this, is you need to live below what you could spend today and invest the difference.
Investment Principle #2:
Understand that Investing is an Implementation challenge, not a Strategic challenge.
- Proper Investing from a high-level perspective is easy.
- Talking about it is not difficult, getting it done is the challenge.
Many excellent resources are free and on the internet.
- However, as we all know by now, the internet is also full of miss-information.
- You will be able to filter the good from the bad if you adopt an evidence-based philosophy with regards to what you read. Math and science are your friends when dealing with numbers. Trust me on this one.
Investment Principle #3:
Invest like a Realistic Optimist.
- The idea of Investing like an Optimist is a concept I read earlier this month on Barry Ritholz’s blog, and it turns out to be from a blog that Morgan Housel wrote. The original inspiration for all of this comes from a 1984 interview Bill Gates gave to Jane Pauley.
- I’ve added my own twist with the use of the word Realistic as I think this phrase better captures what an individual investor should be doing. It melds the short-term imperfections of the market (and the need to be prepared for volatility) with its long-run positivity.
- This is just another way of saying that it is Time in the Market, not Timing the Market that generates wealth. Do not be afraid. Get in the market and be prepared for some ups and downs.
- So, despite how much the market has risen recently, or fallen from its highs, understand that it is likely to make another new high sometime in the future. Trust that long-run trends will likely be in place for your lifetime (despite the current short-term prognosis) and invest like a Realistic Optimist.
That is it for Part I of SIMC’s Top 6 Investment Principles for Individual Investors. I will outline principles 3 through 6 next month. Please stay tuned. If you have any questions in the meantime, please do not hesitate to contact me.
This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. The views expressed are those of Southern Investment Management Collective (SIMC) and do not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. SIMC, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional. Investment advisory services offered through Mutual Advisors, LLC DBA Southern Investment Management Collective, a SEC registered investment adviser.
About the Author: Kent Fisher, CFA, CFP®
Kent Fisher is a Chapel Hill, NC Fee-Only Comprehensive Wealth Manager at the Southern Investment Management Collective (SIMC). SIMC provides comprehensive financial planning, retirement planning and investment management services to help clients organize, grow and protect their assets. SIMC serves clients as a fiduciary, and tailors all solutions to each client's unique situation