The basic recipe for wealth creation through investing is to buy at a low price and sell at a high price. This means buying in when most people are selling, then selling when most people are buying. Logically, it makes sense. In reality, it can be painful.
When an investment is the darling of Wall Street, however, the opposite often happens. People follow the headlines and flock to invest. This leads to the essential error of emotional investing: buying when the price is high. Here’s your clue: if everyone is queueing up to buy one thing, then the resulting long line is not the line you want to wait in.
This is one of the most common psychological traps when it comes to investing. It’s what makes smart investing so difficult, even for smart and capable people. Quite simply, good investing can feel lousy. It can mean selling what everyone wants and buying what nobody wants. Making those decisions, to go against the crowd and against one’s own emotions, is difficult. For this reason, a discretionary money manager can help immensely: they remove the possibility of sabotaging one’s logical strategy. A discretionary money manager will invest a client’s accounts on their behalf, freeing the client from day-to-day investment decisions (of course, said money manager must be a fiduciary, someone who is legally required to act in their client’s best interests).
For sustainable growth, not stress, create a diversified portfolio that samples from a balanced basket of stocks, bonds, and commodities. Adjust your investment strategy to take on an amount of smart risk that is appropriate for your financial situation and goals, while allowing your assets to grow to their full potential. The way to make money by investing is to embrace a long-term view.
