- Have a Long-Term Time Horizon
A. The length of the holding period is inversely proportionate to average yearly volatility. The longer the time horizon, the less short-term volatility means to the investor.
- Don’t try to Time the Market.
A. Timing almost always decreases performance.
B. I’ve never seen a hospital wing dedicated to a market timer.
- Invest Regularly
A. Dollar Cost Average key to Successful Investing
- Diversify Properly
A. Have a realistic risk tolerance
B. “I want to manage your risk, not your return”.
C. Tell clients to initially underestimate their short-term risk tolerance. That beat panicking and selling out at the bottom.
D. As you do asset allocation, make sure the selections match the client’s risk tolerance.
- Set Realistic Expectations
A. Mr. and Mrs. Client, what is it you expect of me?
B. Since 1926, the S & P 500 HA averaged 11% per year compounded. A reasonable expectation is 12%-15% per year.
- When in Doubt, Do Nothing
A. There is more money lost in preparing for a correction than in the actual correction itself.
B. It’s okay to do nothing if the following criteria are met:
I. A long-term time horizon
II. A reasonable risk tolerance
III. Proper asset allocation
IV. A properly diversified portfolio
- Shifting Styles is Often Warranted
A. Like using cruise control.
B. This is not market timing.