Simple investments can help increase your returns.
When Confucius said, “Life is really simple, but we insist on making it complicated,” he could have been alluding to the fact that using complicated investing strategies can reduce your overall performance. Simple investment strategies (like diversification and dollar-cost averaging) may have the best chance to lead to long-term success.
While it can be tempting to try timing the market, it’s impossible to predict the market’s movements. In fact, anytime you sell because you think the market is at the top, you risk missing out on potential gains.
Then, after selling (at a lower price than you may have gotten if you held on longer), if you want to continue to be in the market you’ll need to buy again, and hopefully buy a new investment when the market is low. In other words, you need to make two correct predictions in order to successfully time the market…and then you need to repeat that over and over again.
Instead of attempting prophecy and timing the market, simplify your investments with these two steps: focus on a diversified asset allocation and contribute money to your investment accounts on a regular basis.
Why keeping things simple often works
Though past performance can’t predict future returns, historical analysis shows that “buying and holding” has earned a strong return. This is because over time the market has gone up more often than it has gone down. Being in the market for longer maximizes the chance to take advantage of market growth. Also, holding a position for the long term eliminates the stress involved in constantly watching and hoping that your trading decisions were well-timed. For many people, this is the ideal way to manage their investments.
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Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published May 21, 2018.