The Get Rich Slowly Investment Philosophy
An investment philosophy contains the core beliefs that guide an investor’s actions and decisions when saving for the future. It’s like the money blueprint for the stock market. Without a defined philosophy, the choices become arbitrary. Investors buy and sell based on whim and emotion. When there’s a clear ideology, the options become limited to strategies that fit the investment beliefs.
Back when I was doing stupid stock-market tricks, I didn’t have a coherent investment philosophy. Today, I do. After a decade of reading and writing about money, I’ve come to believe that a smart investor should:
Start early. “The amount of capital you start with is not nearly as important as getting started early,” writes Burton Malkiel in The Random Walk Guide to Investing. “Every year you put off investing makes your [goals] more difficult to achieve.” The secret to getting rich slowly, he says, is the extraordinary power of compounding. Given enough time, even modest investment returns can generate real wealth.
Spread the risk. Another way to smooth the market’s wild ups and downs is through diversification, which simply means not putting all of the eggs into one basket. Own more than one stock, and own other types of investments. When investors spread their money around, it decreases risk while (counter-intuitively) earning a similar return.
Keep costs low. In Your Money and Your Brain, Jason Zweig notes, “Decades of rigorous research have proven that the single most critical factor in the future performance of a mutual fund is that small, relatively static number: its fees and expenses. Hot performance comes and goes, but expenses never go away.
Keep it simple. Most people make investing far too complicated. There’s no need to guess which stocks are going to outperform the market. Average investors probably can’t. For the average person, it’s much easier and more profitable to simply buy index funds.
Make it automatic. It’s important to automate good behavior so that investors don’t sabotage themselves. You want to remove the human element from the equation. It is recommended to create a monthly transfer from a savings account to an investment account.
Ignore everyone. Everyone might think that a smart investor pays attention to daily financial news, keeping his finger on the pulse of the market. But they are wrong. Smart investors ignore the market. If someone is investing for twenty or thirty years down the road, today’s financial news is mostly irrelevant. Decisions should be based on investors’ personal financial goals, not on whether the market jumped or dropped today.
Conduct an annual review. While it does zero good to monitor investments daily, it’s smart to look things over occasionally. Some folks do this quarterly. The author recommends once per year. An annual review lets the investor shift their money around if needed. And it’s a great time to be sure if the investment strategy still matches the goals and values.
Source: The Get Rich Slowly investment philosophy and strategy by J.D Roth
Asset Multiplier Comments:
- Simplicity is often key to prolonged success having a simple investing philosophy limits the number of investment strategies at disposal. Adopting an investment philosophy that slowly compounds wealth will help investors outperform most other individual investors over the long term.
- Investing based on emotions and whims may result in some lucky gains but it cannot be a sustainable basis for creating wealth.