by Craig Erwin, Ph.D.
Photo by Pixabay on Pexels.com
The 1990s were an exciting time to invest. I bought and sold stocks frequently, checked my portfolio often, and was obsessed with the stock market and journalists who spewed forth endless analyses, predictions, and recommendations. However, I would have been better off dollar-cost averaging into mutual funds and buying and holding, not trading.
I get better results now and it takes almost no time to maintain my investment portfolio even though it is much larger than 30 years ago. I learned that, regarding investing, less is more; the less I do, the better my results, as long as I dump a big chunk of every paycheck into index mutual funds.
I learned the hard way that the more I traded, the poorer my investing returns were. Why? Because the more frequently I checked the markets or my portfolio, the more likely I was to trade, often making mistakes. I often sold a great company’s stock (taking profits) and then bought a lousy company’s stock. Investing mistakes can be costly and they pile up, costing you more and more.
Warren Buffett, a highly successful investor, buys and sells infrequently. He may go months or years without making a trade. When he buys a company’s stock, he tends to hold it for years or even decades.
So, the best approach for most of us is not to trade frequently, but to buy and hold forever (or until we need the money). Since we are highly unlikely to pick stocks as well as Buffett, the best approach is not to buy individual stocks, but to buy index mutual funds or exchange-traded funds regularly. Buy them like clockwork, every week or two weeks, or every paycheck and then just hold on to them.
If you find investing thrilling, check your results, and consider another approach. A boring approach like dollar-cost averaging will likely yield much better results.
Do you find investing boring or thrilling? How regularly do you save and invest?
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