Too often investors focus on factors totally outside of their control such as the behaviour of markets, economic trends and events (like say COVID or the US election), and the performance of individual assets.
If you want to be a successful investor, then it's important you focus on the factors that you can control. The best way I have found to do this is to adhere to the following five key principles.
KEEP IT SIMPLE
The first key principle is to keep it simple. While investing does require some complexity, in my experience, the simpler the better. Just like a piece of machinery, the more complexity and moving parts, the greater the chance that that something will break.
HAVE A PLAN
Without a plan it is easy to lose your way, so the second principle is to have a clear and realistic plan. Once you've developed your plan, document it and regularly review it but above all stick to it as best as possible. A plan is what will help you hold fast when things get rough.
DON'T BET THE FARM
To achieve a return there has to be some risk. However it's critical to assess what risk you are taking on and whether it is worth it. Therefore, the third principle is to make sure you don't "bet the farm". Always assess your downside. If things don't go to plan, could that cause you to lose your farm or your home? If so, tread very carefully.
KEEP COSTS LOW
You can't control the weather, the economy or investment markets but you can control your costs. Every dollar of costs chips away at your return and can significantly impact your long-term outcome.
MAINTAIN PERSPECTIVE AND LONG-TERM DISCIPLINE
Because investing induces emotions of panic, fear and greed, even experienced investors need to be careful to keep a long-term perspective and a disciplined approach.
Abandoning the plan can be costly, and research has shown that one of the main reasons for a financial plan failing long term is poor investor behaviour.
When markets are in turmoil, some investors may find themselves making impulsive decisions or, alternatively, becoming paralysed, unable to implement or stick to an investment strategy.
Despite bumps along the way, history tells us that investors who follow these five principles and stay the course, long term will be well rewarded.